Among the likely winners is Horizon Pharma, which just last week completed an address change — known as an inversion — from Illinois to low-tax Ireland.
The new Treasury Department rules take effect today, capturing companies like Medtronic that are still in the process of switching nationalities and sparing those that have already finished their transactions.
Medtronic’s plan to become Irish, announced in June, was part of a wave of such deals that focused attention in Washington on the growing tax avoidance trend and caused Treasury Secretary Jacob J Lew to reverse himself.
After saying in July that Treasury lacked the authority to stop the deals, he started work on new regulations in August to limit the tax savings they generate. Congress is deadlocked over a legislative response.
The rules end a period of uncertainty for companies considering such deals, said Steven Rosenthal, a senior fellow at the Urban Institute in Washington and a former corporate lawyer. “Once you clarify the rules, you allow companies to quantify their benefits more cleanly,” he said.
Medtronic and drugmaker AbbVie, among the eight US companies planning inversions, have large amounts of foreign earnings held in cash; the Treasury rules would restrict inverted companies’ access to those funds.
In announcing the rules, Lew said that “for some companies considering deals, today’s action will mean that inversions will no longer make economic sense”.
Medtronic is getting an Irish address through a takeover of Covidien.