Exclusive: Curbing tax-driven business moves abroad a priority - U.S. Treasury

Wed Apr 30, 2014 4:15pm EDT

The ticker symbol for AstraZeneca is displayed next to a ticker for Pfizer on the floor of the New York Stock Exchange April 28, 2014. REUTERS/Brendan McDermid

The ticker symbol for AstraZeneca is displayed next to a ticker for Pfizer on the floor of the New York Stock Exchange April 28, 2014.

Credit: Reuters/Brendan McDermid

(Reuters) - The Obama administration is seeking ways to curb tax-dodging by U.S. businesses that reincorporate overseas, a U.S. Treasury official told Reuters on Wednesday, highlighting growing concern about deals known as "inversions."

"Cracking down on companies that reincorporate overseas to reduce their U.S. taxes is a priority for the administration," the official said in an email responding to questions about a pending administration proposal and recent events.

U.S. drugmaker Pfizer Inc (PFE.N) said on Monday it has made takeover bids for UK rival AstraZeneca Plc (AZN.L) in a possible

deal to merge the two into a UK holding company with a UK tax domicile. Like many other inversion structures, Pfizer's operational headquarters would remain in the United States.

About 50 U.S. companies have done similar transactions in the past 30 years, relocating their tax residences to lower-tax countries via mergers or other restructuring arrangements, but making few changes to their core U.S. business operations. About half of these transactions have occurred since 2008.

President Barack Obama's 2015 budget, introduced in early March, includes a proposal to crack down on inversions by making them more difficult to do with higher minimum levels of foreign ownership required.

With the U.S. Congress deadlocked over tax-and-spending policy, the chances of an inversion crackdown becoming law soon were slim, said analysts, though it could not be ruled out.

"The most effective way to reduce inversion incentives is through fundamental tax reform, which we don't see Congress taking up until 2015 at the earliest," said Terry Haines, head of political analysis at private macro research firm ISI Group.


Another vehicle for tightening the inversion rules as Obama proposes could be measures moving through Congress to renew dozens of unrelated temporary tax laws known as "extenders," though analysts said this was only a remote possibility.

"While some might try and attach this proposal to a tax extenders bill, it could complicate an already delicate situation," said policy analyst Brian Gardner at investment firm Keefe, Bruyette & Woods. "The tax committee chairmen probably want to keep the extenders bill as clean as possible."

The potential Pfizer-AstraZeneca tie-up is not the only big inversion deal in the works. Omnicom Group Inc (OMC.N), the largest U.S. advertising company, is trying to merge with French rival Publicis Groupe SA (PUBP.PA) into a Netherlands-based holding company with a UK tax domicile, though the deal has encountered delays.

"Inversion transactions illustrate the need for comprehensive business tax reform that would lower corporate tax rates and limit the ability of multinationals to shift income outside the U.S.," the Treasury official said, noting that the administration knows such deals "are occurring and aren't being caught by the current rules."

The U.S. Internal Revenue Service on Friday issued a notice limiting shareholders' tax-free treatment in inversions.

Greg Valliere, chief political strategist at Potomac Research Group, said: "I just don't see this moving unless it's part of comprehensive tax reform - and that's going nowhere this year."

(Reporting by Kevin Drawbaugh; Editing by Howard Goller, Leslie Adler and Tom Brown)

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