Newspaper article International New York Times

U.S. Moves to Limit Corporate Inversions ; New Rules Take Aim at Companies That Have Done Rapid Acquisitions

Newspaper article International New York Times

U.S. Moves to Limit Corporate Inversions ; New Rules Take Aim at Companies That Have Done Rapid Acquisitions

Article excerpt

The new rules take particular aim at companies that have completed multiple acquisitions of American companies in a short period.

The United States Treasury Department has taken new steps to further curtail a popular type of merger in which an American company buys a foreign counterpart, then moves abroad to lower its tax bill.

The rules, announced on Monday in conjunction with the Internal Revenue Service, take particular aim at foreign companies that have completed multiple deals with American companies in a short period, what the regulator calls "serial inverters."

In pushing the rules, its third effort in recent years, the Obama administration appears to have raised concern about the fate of the biggest inversion, Pfizer's $150 billion takeover of Allergan, a Dublin-based drug maker.

The rules would apply to that inversion and any transactions that close after Monday.

Shares in Allergan tumbled 21 percent in after-hours trading following the Treasury announcement.

"We are conducting a review of the U.S. Department of Treasury's actions announced today," Pfizer and Allergan said in a joint statement on Monday. "Prior to completing the review, we won't speculate on any potential impact."

The rules do not end there. The Treasury Department also took aim at another feature of these so-called corporate inversion transactions: complicated internal loans that effectively move profits of United States-based businesses overseas.

This tactic, known as earnings stripping, involves the American subsidiary borrowing from the parent company and using the interest payments on the loans to offset earnings -- a cost that is not reflected on financial statements but lowers the tax bill.

Monday's rules classify this intra-company transaction as if it were stock-based instead of debt, eliminating the interest deduction for the American subsidiary.

This change applies not just to inversions but to any foreign company that has acquired an American entity and used this technique to achieve lower taxes. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.