Treasury tax crackdown creates waves

The Treasury Department’s crackdown on tax inversions reverberated through the political and corporate worlds on Tuesday. 

Both Democratic White House hopefuls endorsed the effort from President Obama’s administration.

{mosads}Obama himself showed up at the White House briefing room to tout the new proposals, which are meant to prevent a company from lowering its tax bill by moving its headquarters overseas after merging with a smaller company. Such corporations usually change little beyond their official addresses. 

“When companies exploit loopholes like this, it makes it harder to invest in the things that are going to keep America’s economy going strong for future generations,” he said.

Their first casualty might have come a short time later: Reports said Pfizer was considering pulling out of its merger with Allergan. If that $160 billion deal goes through, it would be the largest corporate inversion yet. 

The Treasury on Monday released temporary regulations designed to limit the tax benefits for serial inverters.

The department also proposed rules designed to restrict one of the main tax benefits for inverted companies, called “earnings stripping.” 

This is the third round of guidance the Treasury has released about inversions in the past few years.

Tax experts and politicians have pointed out that the guidance could significantly reduce the tax benefits of the Pfizer-Allergan merger because Allergan has been involved in a series of inversions and mergers already. 

Allergan’s stock closed down about 15 percent on Tuesday, and Pfizer’s stocks were up about 2 percent. 

“The Treasury Department is not focused on a specific transaction,” White House press secretary Josh Earnest said. “It’s focused on specific loopholes.”

Earnest would not comment specifically on the Pfizer deal but said the administration would not be disappointed if inversion deals fell apart.

“It is fair to say the administration would be pleased if corporate inversions that happened solely so corporations don’t pay their fair share won’t go through,” he said.

The administration has repeatedly said that only legislation can completely stop inversions, and Obama on Tuesday called on Congress to act. 

He criticized congressional Republicans for not moving on business tax reform.

“My hope is they start getting serious about it,” Obama said.

But Congress is unlikely to pass tax reform legislation this year given differences between Republicans and Democrats on the issue and extra recess time due to the fall elections. 

Top Republican tax writers and business groups blasted the Treasury Department’s guidance, saying it could be harmful.

Rep. Charles Boustany (R-La.), chairman of the Ways and Means subcommittee on tax policy, said “this proposal will do little to stop actual inversions, but will make it more difficult for foreign firms to invest in the United States.” 

House Ways and Means Committee Chairman Kevin Brady (R-Texas) said Tuesday afternoon that the committee is studying the regulations, “including how the proposed retroactive tax changes will impact our economy and affect American jobs, as well as Treasury’s authority to issue such sweeping tax changes without consideration by Congress.”

The issue of inversions has come up on the campaign trail too; Democratic presidential candidates Hillary Clinton and Bernie Sanders have criticized the deals and offered proposals to stop them. 

Sanders said the Treasury’s actions “have put profitable corporations on notice that their greed will not be allowed to continue,” and a spokesman for Clinton called the guidance a “strong step forward.”

Jordan Fabian contributed.