×

Treasury lists new actions to combat tax-inversion deals

The Treasury Department issued a second notice Thursday evening designed to limit tax benefits of overseas tax-inversion deals. Tax inversions occur when a company completes an acquisition, moves its tax address out of the United States and therefore potentially reduces tax payments.

The department's notice will further limit the ability of U.S. firms to combine with a foreign entity in order to create a company in a third country. The notice also restricts the ability of American companies to inflate a foreign parent corporation's size and requires the new foreign parent to be a tax resident of the country in which it was incorporated.

The Treasury said these actions apply to deals closed Thursday or after Thursday.

The latest action comes after Ireland-based Allergan confirmed last month that it was in talks with Pfizer about a potential deal. Though a possible merger raised questions about an inversion, neither company at the time gave details about the structure of a transaction.

A senior Treasury official declined to comment on how the new actions would impact the Allergan-Pfizer deal on the horizon. The official said that the department is not focused on particular companies or transactions but rather focused on emphasizing its overall guidance.

A Pfizer representative said the company was aware of the Treasury Department's new notice but declined to comment. Allergan did not immediately respond to CNBC's request for comment.

"While we intend to take additional action in the coming months, there is only so much the Treasury Department can do to prevent these tax-avoidance transactions," said Treasury Secretary Jacob Lew. "Only legislation can decisively stop inversions."

Jack Lew, Treasury secretary
David Orrell | CNBC
Jack Lew, Treasury secretary

On Wednesday, Lew wrote a letter to lawmakers in which he called on Congress to pass legislation to stop these moves.

The Obama administration has also previously cited a need for "economic patriotism" by keeping taxes within the U.S.

Moreover, activist investor Carl Icahn pledged $150 million of his own money last month to push for legislation that curbed inversions.