The $150 billion merger of Pfizer and Allergan has been called off after the Obama administration issued new rules to punish companies that engage in corporate tax avoidance.
Pfizer was hoping to merge with Allergan and move its headquarters to Ireland, where tax bills are lower than the United States.
The Obama administration has been targeting “inversion,” a practice in which a US multinational merges with a foreign company and then moves its corporate address to a new legal tax residence.
New rules issued by the U.S. Treasury on Monday seek to discourage inversions. They change how the ownership percentage of the foreign company is calculated and crack down on a tax strategy called “earnings stripping.”
Pfizer explicitly said that the new rules are the reason it and Allergan were scrapping the merger plans.
Following the new rules Allergan shares fell by 15% during Monday trading.
This is the second attempt by Pfizer to engage in tax inversion. In 2014, it tried unsuccessfully to acquire British drug maker AstraZeneca.
Pfizer has been very vocal about its attempts to engage in inversion practices.
President Obama lauded the new Treasury rules on Tuesday, saying that existing laws are “poorly designed.”
Legal loopholes in the tax code can “come at the expense of middle class families because that lost revenue has to be made up somewhere,” Obama said earlier in the week.
“It means that we’re not investing as much as we should in schools, in making college more affordable, in putting people back to work, in rebuilding our roads, our bridges, our infrastructure, creating more opportunities for our children.”