Treasury Department sets third round of rules targeting corporate inversions

WASHINGTON – The Treasury Department announced a package of rules Monday aimed at making “tax inversions” – when U.S. companies move abroad for lower tax rates – less financially appealing.

The new regulations, the third round the Treasury Department has put forward on inversions, seek to limit internal corporate borrowing that shifts profits out of the United States.

Tax inversions have sparked a political outcry. In November, drug companies Pfizer and Allergan announced a $160 billion deal that could save New York-based Pfizer hundreds of millions of dollars in U.S. taxes annually by moving its headquarters for tax purposes to Ireland, where Allergan is based.

Late Monday, Pfizer and Allergan issued a joint statement saying that they are reviewing the new rules and would not speculate on their potential impact. Investors, however, appeared to think the rules could undermine the two companies’ deal, and sent Allergan’s shares down nearly 22 percent in after-hours trading. Pfizer’s shares rose about 2 percent.

Treasury Secretary Jacob Lew said the new rules are designed to make inversions less economically beneficial for companies. But he again called on Congress to act to halt the practice.

“Only new anti-inversion legislation can stop these transactions,” Lew said on a conference call with reporters. “Until that time, creative accountants and lawyers will continue to seek new ways for companies to move their tax residences overseas and avoid paying taxes here at home.”

Several Democrats have announced bills to make it harder for U.S. corporations to invert, and President Barack Obama has included proposals in a package of measures to reform corporate taxes. But prospects for passing such legislation in an election year are not deemed high.