"Cracking down on companies that reincorporate overseas to reduce
their U.S. taxes is a priority for the administration," the official
said in an email responding to questions about a pending
administration proposal and recent events.
U.S. drugmaker Pfizer Inc <PFE.N> said on Monday it has made
takeover bids for UK rival AstraZeneca Plc <AZN.L> in a possible
deal to merge the two into a UK holding company with a UK tax
domicile. Like many other inversion structures, Pfizer's operational
headquarters would remain in the United States.
About 50 U.S. companies have done similar transactions in the past
30 years, relocating their tax residences to lower-tax countries via
mergers or other restructuring arrangements, but making few changes
to their core U.S. business operations. About half of these
transactions have occurred since 2008.
President Barack Obama's 2015 budget, introduced in early March,
includes a proposal to crack down on inversions by making them more
difficult to do with higher minimum levels of foreign ownership
With the U.S. Congress deadlocked over tax-and-spending policy, the
chances of an inversion crackdown becoming law soon were slim, said
analysts, though it could not be ruled out.
"The most effective way to reduce inversion incentives is through
fundamental tax reform, which we don't see Congress taking up until
2015 at the earliest," said Terry Haines, head of political analysis
at private macro research firm ISI Group.
AN 'EXTENDERS' STRATEGY?
Another vehicle for tightening the inversion rules as Obama proposes
could be measures moving through Congress to renew dozens of
unrelated temporary tax laws known as "extenders," though analysts
said this was only a remote possibility.
[to top of second column]
"While some might try and attach this proposal to a tax extenders
bill, it could complicate an already delicate situation," said
policy analyst Brian Gardner at investment firm Keefe, Bruyette &
Woods. "The tax committee chairmen probably want to keep the
extenders bill as clean as possible."
The potential Pfizer-AstraZeneca tie-up is not the only big
inversion deal in the works. Omnicom Group Inc <OMC.N>, the largest
U.S. advertising company, is trying to merge with French rival
Publicis Groupe SA <PUBP.PA> into a Netherlands-based holding
company with a UK tax domicile, though the deal has encountered
"Inversion transactions illustrate the need for comprehensive
business tax reform that would lower corporate tax rates and limit
the ability of multinationals to shift income outside the U.S.," the
Treasury official said, noting that the administration knows such
deals "are occurring and aren't being caught by the current rules."
The U.S. Internal Revenue Service on Friday issued a notice limiting
shareholders' tax-free treatment in inversions.
Greg Valliere, chief political strategist at Potomac Research Group,
said: "I just don't see this moving unless it's part of
comprehensive tax reform — and that's going nowhere this year."
(Reporting by Kevin Drawbaugh; editing by Howard Goller, Leslie
Adler and Tom Brown)
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