Apr 07, 2016 05:37 AM EDT

Pfizer-Allergan Deal Scrapped Due to New US Tax Inversion Rules

With the issuance of the new tax inversion laws on Monday, Obama became the victor since Pfizer scrapped its $160-billion deal with Allergan Plc. If that deal had materialized, it could have enabled the U.S. drug maker to keep a large chunk of its profits out of reach of the country's tax collectors.

However, the latest aggressive federal actions have discouraged Pfizer to merge with another drug maker, Allergan PLC which effectively scuttles the U.S. company's tax inversion process.

Tax inversion is the process wherein a local company which wants to avoid high tax rates in its country of origin would be able to cut its taxes if it transfers its official address to another country which imposes lower tax rates.

For tax purposes, the original U.S. company is considered foreign-owned, even if all its operations and officials remain in the country.

Previously, Pfizer Inc. and Allergan Plc. are in a quandary. The recently issued new rules of the United States Treasury are scuttling their efforts to move the former's address, but not its operations or its headquarters to Ireland. That European country offers lower taxes than the U.S.

The new rules of the government are designed to make such deals called "tax inversion" less profitable.

When asked about what they will do with regards to these new regulations, both companies were silent and just hinted that they are thinking about quitting the inversion.

But tax and legal experts say tax inversion deals will remain and survive even with the scrapping of the Pfizer-Allergan deal since the process remains attractive as long as the United States persists on implementing its high tax rates on businesses.

"There may be a temporary respite from inversions, but the large financial benefits ... are still there," said Bret Wells, a University of Houston law professor and a tax lawyer.

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