- Gary Cameron/Reuters
US President Barack Obama spoke out against tax inversions one day after the Treasury Department announced tighter rules.
Speaking at the White House on Tuesday, Obama said tax inversions hurt ordinary Americans who do not have the financial muscle to take advantage of loopholes in the tax system.
In tax inversion, US-based companies may acquire others in countries that have a more favorable tax code, and change the corporate headquarters to be based in those countries. Without any dealmaking, they could also set up shop in those countries to benefit from more relaxed tax laws.
“Rather than doubling down on polices that let a few big corporations or the wealthiest among us play by their own rules, we should keep building an economy where everybody has a fair shot, and everybody plays by the same rules,” Obama said.
Inversion “makes hardworking Americans feel like the deck is stacked against them,” he said.
“The Treasury Department hauled out a nuclear weapon yesterday, killing the “earnings strippings” provisions that allow firms to juggle revenues between U.S. and offshore divisions in entities that have completed “inversion” deals,” wrote Greg Valliere, chief global strategist at Horizon Investments, in a note Tuesday.
The Treasury Department’s rules announced Monday would put tighter restrictions on inversion transactions if companies have done them within the last 36 months. The rules would also recalculate the anti-inversion penalties that US companies incur for mergers with foreign companies, where American shareholders would own at least 60% of the combined company.
Shares of drugmaker Allergan collapsed in after-hours trading on Monday, and were the weakest on the S&P 500 in Tuesday trading, down 16%. The company’s pending $160 billion deal with Ireland-based Pfizer announced late last year would take advantage of the country’s 12.5% tax rate, which is much lower than America’s.
Obama said the leaked Panama Papers, which allege several instances of tax evasion among the world’s most powerful people, were a reminder that tax avoidance is a “big global problem.”
“The best way to end irresponsible behavior is by tax reform: simplifying the tax code for everyone,” Obama said. He said despite his proposals, Congress has not yet taken meaningful action.