Pfizer-Allergan deal refocuses market on U.S. tax-inversion rules

Fri Nov 13, 2015 5:15pm EST
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By Kevin Drawbaugh

WASHINGTON (Reuters) - Pfizer Inc's (PFE.N: Quote) buyout bid for Allergan Plc (AGN.N: Quote) has financial markets on edge over a possible new move by the U.S. Treasury Department against tax-inversion deals, but the outlook for any such steps was still unclear on Friday.

For months, Treasury has offered no fresh guidance on the inversion issue, leaving tax experts to speculate about what could come next. Inversions typically involve a U.S. multinational buying a smaller foreign rival and relocating to its home country, if only on paper, to escape U.S. taxation.

Allergan shares fell 2.3 percent on Thursday afternoon amid reports that Treasury might move to block its deal with Pfizer.

Possible steps the government might take include tightening the rules on two strategies related to inversions, tax experts said: "earnings stripping" and "skinny down" distributions.

Treasury took several actions in September 2014 to reduce the tax benefits available to companies that have inverted, while also making new inversions more difficult to do and less potentially rewarding. The moves stemmed a wave of inversions, but not before Minnesota medical technology group Medtronic (MDT.N: Quote) reincorporated in Ireland.

At the time, Treasury and the Internal Revenue Service said they were weighing further actions. On Friday, a Treasury spokeswoman offered more of the same language.

"The Treasury Department and the IRS expect to issue additional guidance to further limit inversion transactions," said the statement from late last year.

That guidance said Treasury was looking at ways "to address strategies that avoid U.S. tax on U.S. operations by shifting or 'stripping' U.S.-source earnings to lower-tax jurisdictions, including through intercompany debt."   Continued...

The Pfizer logo is pictured at their building in the Manhattan borough of New York October 29, 2015.  REUTERS/Carlo Allegri -