The U.S. government's latest moves to prevent the $160 billion Pfizer-Allergan tax inversion deal, and future ones like it, can make the U.S. market unattractive to legitimate foreign investors. The administration uses the U.S. market's enormous size to browbeat companies into submission. Size alone, however, can only motivate investors to a degree.
In its zeal to stop Pfizer from formally taking over Ireland-based Allergan, President Barack Obama's administration hasn't just made it harder to qualify for an inversion deal, which allows a company to change its domicile from the U.S. to one with a more favorable tax climate. It has also proposed measures against what's known as earnings stripping: borrowing overseas by a U.S. subsidiary and using its U.S. profits to repay the loans, thereby avoiding U.S. corporate tax. The Treasury Department proposes that the debt be treated "as stock," and payments on it as taxable dividends, unless it's incurred "to fund actual business investment, such as building or equipping a factory."
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