WASHINGTON – The Obama administration on Thursday issued new rules aimed at reducing the tax benefits available to companies that move their tax addresses overseas.
The new rules follow an initial package of rules that the administration implemented in September 2014 in response to a wave of announcements by U.S. companies seeking to lower their taxes by moving their headquarters overseas. Those included an announcement in August of last year by Burger King that it planned to acquire Tim Hortons, the Canadian coffee and doughnut chain.
Treasury Secretary Jacob Lew said, however, there is only so much the administration can do to prevent U.S. companies from pursuing the manoeuvr, known as a tax inversion. He again urged Congress to pass legislation.
“Our actions can only slow the pace of these transactions. Only legislation can decisively stop them,” Lew told reporters on a conference call.
Senate Finance Committee Chairman Orrin Hatch, R-Utah, said that approval of legislation in Congress will require “stronger leadership from the White House to force a bipartisan compromise” between Republicans and Democrats.
The new Treasury rules would make it harder for a U.S. company to qualify for a tax inversion. But they don’t address a key area known as “earnings stripping,” a process by which companies increase deductions for their U.S. operations as a way to move profits to low-tax countries.
Lew said that Treasury is studying other rules that it could implement in coming months. Other Treasury officials said a measure to deal with “earnings stripping” is among those being considered.
The new Treasury rules come as two large pharmaceutical companies, Pfizer Inc. and Allergan PLC, are considering a merger that could be structured as an inversion. Pfizer is headquartered in New York while Allergan is located in Ireland.
Allergan did not respond immediately to a request for comment while Pfizer had no comment on Treasury’s new rules.
AP Business Writer Linda A. Johnson in Trenton, New Jersey, contributed to this report.