US tightens rules to block mergers aimed at tax avoidance

(MENAFN- AFP) The US Treasury announced new rules Monday aimed at stemming the tide of mergers between US and foreign businesses designed to sharply lower the US company's tax bill.

Treasury Secretary Jacob Lew said the toughened regulations target companies moving their headquarters, but not their US operations, to low-tax domiciles abroad via so-called inversion deals.

The new rules make it tougher for companies involved in stock-based merger deals to achieve the minimum foreign ownership required to avoid US corporate tax liability.

They also make it harder for companies to "strip" earnings from their US units by loading them with debt from an offshore parent.

"For years, companies have been taking advantage of a system that allows them to move their tax residences overseas to avoid US taxes without making significant changes in their business operations," Lew said.

"Many of these companies continue to take advantage of the benefits of being based in the United States -- including our rule of law, skilled workforce, infrastructure, and research, and development capabilities -- all while shifting a greater tax burden to other businesses and American families."

The new rules add to a group of regulatory updates announced last November which were meant to stall the surge in inversions worth hundreds of billions of dollars especially in the pharmaceuticals industry.

That includes the Pfizer's record $160 billion proposed purchase of Allergan, which one anti-inversion group said could save it $35 billion in US taxes.

Lew said the Treasury's actions, which came in lieu of action by Congress to reform tax laws, had helped slow the pace of inversion deals.

They will apply to any deal not yet consummated, which potentially includes the Pfizer-Allergan deal.

He added that Treasury would explore other ways to stall the deals, but called on Congress to enact more substantial business tax reforms that would include specific anti-inversion laws.

"Congress should not wait to act as inversions continue to erode our tax base," he aid.pmh/mdl