'Pfizergan' talks prompt new anti-tax inversion rules from Treasury

The U.S. Treasury Department is rushing out a new set of guidelines on the "tax inversion" deals that have allowed drugmakers to save big money on taxes by buying overseas rivals and moving their domiciles to friendlier jurisdictions.

Treasury Secretary Jacob Lew

In a letter on Wednesday, Treasury Secretary Jacob Lew said his agency's new guidance would be designed "to deter and reduce further the economic benefits of corporate inversions."

The move comes as Pfizer ($PFE) is negotiating a merger with Allergan ($AGN), which is technically based in Ireland thanks to a previous inversion, though most of its headquarters operations take place in New Jersey. According to media reports, the all-stock deal would be valued at up to $150 billion, the biggest buyout ever in the drug industry.

"The fact that American companies, including Pfizer, continue to pursue inversions makes clear that additional steps are needed to stop this trend," Rep. Sander Levin (D-MI) said in a statement, as quoted by Reuters.

The Treasury Department has already made such deals more difficult to structure with guidelines issued last fall, but the agency can't block them without action in Congress.

Pfizer CEO Ian Read has said he's confident that his company could properly structure an overseas buyout to achieve an inversion and reap the tax benefits, at least under the rules Treasury issued last year. Whether another round of guidance would change that remains to be seen, but some sources close to the deal said new inversion rules could change the terms.

Read is well aware of the fact that Congress is crucial for real action against inversions. During Pfizer's third-quarter earnings call, he said he'd prefer to pull off an inversion before the current Congress wraps up its work. "[Y]ou'd rather do it in a Congress where you do know who are setting the rules and what the rules are," Read said at the time.

A tightening of the rules on inversions has already spoiled one pharma merger. Last year, AbbVie ($ABBV) pulled the plug on its $55 billion agreement to buy Ireland's Shire ($SHPG), citing changes that had "introduced an unacceptable level of uncertainty to the transaction."

- here's Jacob Lew's letter
- see the Reuters story

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