U.S. Treasury Unveils New Steps to Limit Tax Inversions

WASHINGTON—The Treasury Department took new steps Monday to limit corporate tax-avoidance transactions, targeting what it calls "serial inverters" and internal corporate borrowing that shifts profits out of the U.S.

The rules represent the government's third wave of administrative action against the transactions known as corporate inversions, in which U.S. companies take foreign addresses, often through mergers with smaller firms outside the country. The largest such deal, Pfizer Inc.'s merger with Allergan PLC, was announced last year and is scheduled to close in 2016.

The Pfizer deal could be endangered by the proposed rules since Allergan itself is a product of several inversions over the past few years.

"After an inversion, 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," said Treasury Secretary Jack Lew.

As he did upon releasing anti-inversion rules in September 2014 and November 2015, Mr. Lew again called for Congress to pass short-term anti-inversion legislation and a broader revamp of the U.S. business tax system.

The rules announced Monday would make it harder for individual foreign companies to pick off multiple U.S. targets in a short period of time. The new rules would prevent purchases of American companies within the previous three years from counting as the foreign company's assets when determining whether U.S. anti-inversion rules apply to a new transaction.

They also go after earnings stripping, the maneuvers that inverted companies can use to push profits outside the U.S. Inverted companies can lend money to their U.S. subsidiaries. Those moves, unavailable to companies based in the U.S., create deductible interest in the U.S., reduce the income subject to the 35% U.S. corporate tax rate and move income to a lower-taxed jurisdiction.

In those instances, the Treasury Department is basically giving itself more authority to disregard the formal structure of those transactions as borrowing and revoke the tax advantages of debt.

A senior Treasury official said the rules would be effective on deals closing after today.

Write to Richard Rubin at [e-mail]

(END) Dow Jones Newswires

April 04, 2016 17:25 ET (21:25 GMT)

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