The development throws Ireland’s tax regime back under unfavourable international scrutiny, at a time when the country awaits a heavy-hitting ruling from Brussels on whether the authorities here struck a too-sweet deal with Apple about 15 years ago.
The OECD, which is separately driving a process to end aggressive tax planning by giant corporates and regulate tax havens, produced its major report in recent weeks.
However, the mega-merger plan by Pfizer and Allergan, unveiled as recently as late last month and which is being driven by Irish tax considerations, has renewed controversy in the US about so-called tax inversions engineered by corporates to escape them paying higher levels of US tax.
It led to condemnations by presidential hopefuls involved in both the Republican and Democrat primary races, as the election for the White House hots up.
“Later this week, we intend to issue additional targeted guidance to deter and reduce further the economic benefits of corporate inversions,” according to a letter from the US Treasury seen by Reuters.
Both Pfizer, with a large facility in Cork, and Allergan, which makes botox in Westport in Taoiseach Enda Kenny’s home county of Mayo, are both substantial employers here.
Allergan is already incorporated in Dublin. Through the merger, US-based Pfizer wants to tap its more favourable tax status.
Pfizer Global of Cork is the 10th largest exporter in Ireland and employs 4,000 people in facilities in Cork, Dublin and Kildare.
Allergan, which was itself created by a merger last year, sold a drugs unit last summer, and employs about 1,000 people here.
Pfizer was not named in the US Treasury letter, which was signed by Treasury secretary Jack Lew and addressed to four senior politicians: US senators Ron Wyden and Orrin Hatch, and representatives Kevin Brady and Sander Levin.
All four serve on the Senate and House tax committees. Pfizer and Allergan also declined to comment.
Mr Levin said in a statement: “The fact that American companies, including Pfizer, continue to pursue inversions makes clear that additional steps are needed to stop this trend.”
As a wave of inversions peaked in September 2014, the US Treasury took several regulatory actions to reduce the tax benefits of inverting, while also making new deals more difficult.
That slowed deal flow but did not stop it entirely.
For months tax experts have speculated about what could come next.
Possible steps might include tightening the rules on two strategies related to inversions, tax experts said: So-called earnings stripping and “skinny down” distributions.
Earnings-stripping rules combat shifting of US profits out of the country to low-tax jurisdictions.
The US Treasury has struggled to write new rules on this under present law, said tax experts.
Rules targeting skinny-down distributions are meant to keep US companies from shrinking their operations.