Pfizer and Allergan officially called off their planned merger Wednesday, marking the end of the U.S. pharmaceutical giant’s plans to move its headquarters to Dublin.
The announcement came just two days after President Obama’s Treasury Department rolled out new rules meant to prevent such tax-driven deals, known as corporate inversions.
Allergan confirmed in a statement that the record $160 billion merger was called off. Pfizer will pay the Irish drugmaker $150 million for the costs associated with canceling the deal. Allergan also said that its review of the Treasury regulations indicated that its tax rate would not be affected.
Pfizer CEO Ian Read did not rule out pursuing other deals, and said his company maintains “the financial strength and flexibility to pursue attractive” mergers or acquisitions.
Corporate inversions involve a larger U.S. company buying a smaller business located in a country with low corporate taxes, and then moving the headquarters of the combined corporation to the low-tax jurisdiction.
Neither company said specifically how the new rules made the prospect of combining less attractive. One provision of the regulations, however, would have made it harder for foreign companies that are the results of previous inversions to merge with U.S. businesses. Allergan is such a firm, and was based in the U.S. until 2014.
Another part of the rules is meant to undercut the tax benefits of inversion deals by limiting “earnings stripping,” the practice of shifting taxable income out of the U.S. and into low-tax jurisdictions by having U.S. subsidiaries load up on tax-deductible debt to their foreign parent company.
On Tuesday, Obama called corporate inversions “insidious,” and said corporate tax avoidance placed a greater burden on middle class families.
Republicans have faulted the president for trying to implement punitive measures to stop companies from leaving the U.S., and for doing so by administrative rulemaking in the absence of legislation. They favor tax reform to alleviate the pressures on companies to move their headquarters elsewhere.
Chief among those incentives is the U.S. 35 percent statutory corporate tax rate, the highest among developed nations. That tax rate is levied on all profits corporations earn worldwide, but only when those earnings are brought back into the United States. The result has been trillions in earnings of foreign subsidiaries that corporations have left overseas.
