US Treasury to crack down on tax inversion M&A deals

The USA’s Department of the Treasury announced on Monday that it is taking action to reduce the tax benefits of - and when possible, stop - corporate tax inversions. This action will significantly diminish the ability of inverted companies to escape US taxation.

For some companies considering mergers, this action will mean that inversions no longer make economic sense, the Treasury warned. The action comes in the wake of a number of M&A transactions – including some notable ones in the health care sector – that have appeared primarily based on potential tax advantages, including the failed acquisition of UK-based AstraZeneca by US giant Pfizer.

Current law subjects inversions that appear to be based primarily on tax considerations to certain potentially adverse tax consequences, but it has become clear by the growing pace of these transactions that for many corporations, these consequences are acceptable in light of the potential benefits, the Treasury said.

Genuine cross-border mergers make the US economy stronger by enabling US companies to invest overseas and encouraging foreign investment to flow into the USA. But these transactions should be driven by genuine business strategies and economic efficiencies, not a desire to shift the tax residence of the parent entity to a low-tax jurisdiction simply to avoid US taxes, it explains.