WASHINGTON, April 5 (UPI) -- A day after the U.S. Treasury announced new rules to reign in the practice of American businesses seeking tax relief offshore, President Barack Obama on Tuesday asked Congress to shut that loophole for good.
During a briefing at the White House Tuesday, Obama said the best way to close the loophole is through tax reform -- an act that requires the work of Congress, which is presently controlled by Republicans.
"My hope is they start getting serious about it," the president said. "I am very pleased that the Treasury Department has taken new action to prevent more corporations from taking advantage of one of the most insidious tax loopholes out there, and fleeing the country just to get out of paying their taxes."
The Treasury's new rules will reduce the number of corporate inversions -- which are effectively mergers with foreign companies with the goal of minimizing tax burdens.
"They are gaming the system," Obama said of the companies that use the loophole.
The Treasury's move, announced Monday in conjunction with the Internal Revenue Service, is aimed at U.S. companies that buy foreign companies in order to move U.S. assets overseas and reduce the taxes they pay to the U.S government. The new rule would apply to any inversion attempt after Monday, and retroactively to pharmaceutical manufacturer Pfizer's $150 billion acquisition of Allergan in 2015. Allergan, the maker of Botox, is based in Ireland.
This is the third effort by the Treasury Department in recent years to stop American companies from merging with foreign companies to avoid paying U.S. taxes.
"Treasury has taken action twice to make it harder for companies to invert. These actions took away some of the economic benefits of inverting and helped slow the pace of these transactions, but we know companies will continue to seek new and creative ways to relocate their tax residence to avoid paying taxes here at home," the U.S. Department of the Treasury said in a statement.
Tuesday, Obama said Congress now must act to solidify the effort.
"While the Treasury Department actions will make it more difficult and less lucrative for companies to exploit this particular corporate inversions loophole, only Congress can close it for good," Obama said. "And only Congress can make sure that all the other loopholes that are being taken advantage of are closed."
Allergan stock shares fell 21 percent in after-hours trading Monday night.
The new rules also take aim at earning stripping, in which profits of U.S.-based businesses can be moved to overseas businesses. Borrowing from the foreign entity and using the interest payments to offset earnings reduces the U.S. tax bill. Monday's ruling reclassifies this financial maneuver as though it is stock-based and not debt-based, eliminating the interest deduction.
The Treasury statement quoted Treasury Secretary Jacob Lew, who admitted only Congress can end the inversion process with an overhaul of the tax laws.
"I urge Congress to move forward with anti-inversion legislation this year. Ultimately, the best way to address inversions is to reform our business tax system," Lew said.