While the new rules did not name Pfizer and Allergan, one of their provisions targeted a specific feature of their merger – Allergan’s previous history as a major acquirer of other companies.
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Barack Obama called on Congress to close “one of the most insidious tax loopholes out there”, saying it shortchanges the country. Allergan and Pfizer called off Wednesday, April 6, 2016, a record $160 billion merger after the Treasury issued new rules to make “tax inversions” less lucrative.
With that in mind, it built in room for either party to walk away from the transaction if a change in US law scuttled its potential for tax savings; whichever company heads for the door is required to pay up to just $400 million for its expenses.
The Treasury’s new rules will reduce the number of corporate inversions – which are effectively mergers with foreign companies with the goal of minimizing tax burdens.
Brent Saunders, chief executive and president, said: “While we are disappointed that the Pfizer transaction will no longer move forward, Allergan is poised to deliver strong, sustainable growth built on a set of powerful attributes”.
The U.S. needed to stem the rising tide of corporate inversions, so the new Treasury rules are welcome. “Until that time, creative accountants and lawyers will continue to seek new ways for companies to move their tax residences overseas and avoid paying taxes here at home”.
“It is fair to say the administration would be pleased if corporate inversions that happened exclusively so corporations don’t pay their fair share won’t go through”, Josh Earnest, a White House spokesman, said Tuesday during a press briefing.
The rules announced Monday by Treasury, however, were seen as much more aggressive and expansive, and they sent shock waves up and down Wall Street. The practice has come under increased scrutiny in recent years as big-name firms, such as Burger King, have taken advantage of the tactic.
This is a complex merger whereby the smaller, Dublin-headquartered Allergan would take over Pfizer.
With the deal behind it, Pfizer said it would decide this year about whether to split off its hundreds of generic medicines into a separate business.
In a statement to the stock exchange, the New York-based company said the deal was pulled by mutual consent.
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Pfizer has said it has strategic reasons for pursuing the acquisition, though it would also help the company escape the US’s 35pc corporation tax rate, which applies to profits made anywhere in the world.
