The U.S. Treasury Department introduced new regulations targeted at the Pfizer – Allergan deal, which was designed to capture tax benefits by inversion. Pfizer planned to adopt Allergan’s domicile for tax purposes. The new regulations are crafted to specifically address this deal, using a 3 year look-back to qualify how capital is represented for the purpose of qualifying for the inversion.

Regulations with look-back provisions are typically not retroactive, but give guidance for future decisions. The U.S. Treasury is going after, and trying to publicly humiliate, 2 companies that are making rational decisions in the legal framework the Government established. Pity investors that invested in these companies based on the legal, economic and regulatory framework only to have the Government change the rules (without due process)!

Sure the incentive for the deal was tax reduction. Obama says the companies want the benefits of being in the U.S., but don’t want to pay their fair share. Maybe the broken tax code is the problem? Why do we have to pass regulations to keep companies in the U.S? Isn’t that the way totalitarian governments operate? If the laws aren’t working, fix the laws, or the tax code; but don’t pass retroactive regulations to persecute specific companies. THAT, seems un-American.

As noted by Ian Reed, Pfizer CEO:

If the rules can be changed arbitrarily and applied retroactively, how can any U.S. company engage in the long-term investment planning necessary to compete? The new “rules” show that there are no set rules. Political dogma is the only rule.

– Pfizer (NYSE:PFE) CEO Ian Read