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Trump Administration Scaling Back Rules Meant to Stop Corporate Inversions

The Treasury Department says the Obama-era regulations are unnecessary after the 2017 tax overhaul.

Steve Mnuchin, the Treasury secretary, said the 2017 tax overhaul “leveled the playing field for American businesses.”Credit...Gabriella Demczuk for The New York Times

WASHINGTON — The Treasury Department said on Thursday that it was rolling back regulations issued under the Obama administration that were enacted to prevent American companies from moving their official residence abroad to reduce their tax bills.

The regulations are no longer necessary, Trump administration officials say, because of changes made in the tax overhaul that President Trump signed in 2017. The changes reduced taxes on American companies and included provisions meant to discourage these so-called inversions. In an inversion, an American company merges with a foreign firm and becomes its subsidiary, effectively moving its headquarters abroad for tax purposes.

The previous regulations, issued over the course of President Barack Obama’s second term, were credited by many tax analysts with reducing inversions. Business groups criticized the regulations, and the United States Chamber of Commerce sued to block one set of the rules, calling them “unauthorized and unlawful.”

In a news release, the Treasury secretary, Steven T. Mnuchin, referred to the 2017 law, the Tax Cuts and Jobs Act, saying that it “leveled the playing field for American businesses.”

“Because tax cuts made our business environment more competitive, we are now able to remove regulatory burdens that have been rendered obsolete, further reduce costs for job creators and hard-working Americans, and protect the U.S. tax base,” Mr. Mnuchin added.

Democrats criticized the move.

“The corporations that got a massive taxpayer handout are getting another gift from Donald Trump,” Senator Ron Wyden of Oregon, the top Democrat on the Finance Committee, said in a statement. “The Obama administration had essentially shut down inversions — transactions whose only purpose is to help big multinational corporations move overseas to avoid paying taxes. Weakening these rules only provides an opening for corporations to again dodge their taxes.”

The 2017 law reduced the corporate income tax rate in the United States to 21 percent from a high of 35 percent. It included provisions meant to discourage companies from shifting profits, headquarters designations or actual economic activity overseas to minimize their tax bills.

Thus far there is little evidence, in spite of Mr. Trump’s promises, that the law has reversed a flow of outsourcing that saw many American companies move factory production and jobs to lower-cost countries in recent decades. But supporters of the tax law have claimed at least one victory regarding inversions: the purchase this year of the Irish pharmaceutical company Allergan by its American rival AbbVie.

Mr. Obama’s anti-inversion regulations had effectively scuttled in 2016 what would have been a merger between Allergan and the American pharmaceutical giant Pfizer, which would have resulted in Pfizer’s moving its declared headquarters overseas.

In beginning to undo the Obama-era rules, Treasury officials on Thursday withdrew a set of documentation requirements issued in October 2016 and proposed to replace other regulations relating to inversions with more “streamlined and targeted” rules regarding when certain corporate debt is treated as stock.

Jim Tankersley covers economic and tax policy. Over more than a decade covering politics and economics in Washington, he has written extensively about the stagnation of the American middle class and the decline of economic opportunity. More about Jim Tankersley

A version of this article appears in print on  , Section B, Page 3 of the New York edition with the headline: Treasury Dept. Is Scaling Back Rules to Stop Tax Inversions. Order Reprints | Today’s Paper | Subscribe

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