23 October 2016
Pfizer plans to redomicile in Ireland after buying Allergan. Photo: Bloomberg
Pfizer plans to redomicile in Ireland after buying Allergan. Photo: Bloomberg

US issues rules to curb corporate tax inversion deals

The US Treasury Department took new steps Monday to curb tax-avoiding “inversion” deals.

In such an arrangement, a US firm reincorporates overseas after buying a foreign company.

Under the new rules, there will be a three-year limit on foreign companies bulking up on US assets to avoid ownership requirements for a later inversion deal, Reuters reports, citing a Treasury statement.

In an inversion, a US firm typically buys a smaller foreign rival and reincorporates to the rival’s home country, which moves the firm’s tax domicile, though core management usually stays in the United States.

The Treasury, which had last introduced new rules in November to curb inversions, is also proposing to tackle the practice of post-inversion earnings stripping, with new limits on related-party debt for US subsidiaries.

Earnings stripping covers a range of financial dealings that shrink the taxable US profits of multinationals, including those that have moved their tax domiciles abroad in inversion deals.

Treasury Secretary Jack Lew said the actions would “further rein in” inversions, but he said only legislation in Congress could prevent such deals.

Such tax avoidance schemes have long been a thorn in the Treasury’s side.

The proposed US$150 billion deal between Pfizer Inc. and Allergan plc, which would create the world’s largest drugmaker, prompted renewed scrutiny.

New York-based Pfizer plans to redomicile in Allegan’s home country of Ireland, and the companies expect to complete their merger in the second half of this year.

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