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Merck CEO: Flawed tax structure drives inversions

American companies may not seek so-called tax inversions, which have drawn the ire of the Obama administration, if the government passes reforms friendlier to business, Merck CEO Kenneth Frazier contended Wednesday.

Merck's pharmaceutical peers, Pfizer and Ireland-based Allergan, scrapped a $160 billion merger Wednesday after the U.S. Treasury Department issued new rules to deter inversions. With such deals, U.S. companies aim to pay lower rates by acquiring a foreign company and moving their tax addresses.

Frazier argued that the government should not address inversions themselves, but the taxation concerns that drive companies to seek the deals.

"It's really important to recognize why companies seek to do tax inversions, and that is the current U.S. system of taxation makes U.S. companies simply uncompetitive," Frazier told CNBC's "Closing Bell."

Kenneth Frazier, CEO of Merck.
Mark Neuling | CNBC
Kenneth Frazier, CEO of Merck.

Allergan CEO Brent Saunders believes the government's new rules targeted its deal with Pfizer. He contended the regulations were "changed after the game has started to be played."

"It really looked like they did a very fine job of constructing a rule here — a temporary rule — to stop this deal, and obviously it was successful," he told CNBC's "Squawk on the Street" on Wednesday.

On Tuesday, President Barack Obama bashed inversion deals, saying the forgone tax revenues leave "the rest of us with the tab." He called on Congress to eliminate "wasteful" loopholes that he said favor wealthier Americans and powerful corporations.

"These new actions by the Treasury Department build on steps we've already taken to make the system fair," Obama said.

But Frazier argued the current corporate tax structure hurts rather than helps companies. He called for reform that both imposes a lower tax rate on businesses and stops so-called double taxation on overseas sales.

Frazier said he believers lawmakers can pass comprehensive reform because they "know it's important for U.S. companies to be competitive."

CNBC's Tom DiChristopher and David Faber contributed to this report.