A screen displays the share price for pharmaceutical maker AbbVie on the floor of the New York Stock Exchange July 18, 2014. REUTERS/Brendan McDermid
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U.S. companies are racing to complete tax-reducing offshore mergers before a credible threat to stop them emerges from Congress.It joins seven other companies, including Medtronic Inc., with pending deals that would be unwound, renegotiated or penalized under plans from the Obama administration and Congress to make tax changes retroactive to May.Still, companies including Medtronic and Salix Pharmaceuticals Ltd. are including contingencies that allow them to back out if Congress acts unexpectedly, showing how crucial the tax ramifications are to such deals. AbbVie and Shire don't have such a clause in their agreement. Under current rules, U.S. companies can change their tax home through a merger if the former shareholders of the foreign company own at least 20 percent of the combined company. Executives aren't required to move and many inverted companies are run from the U.S. It wouldn't affect companies with completed inversions, such as Eaton Corp. Plc and Actavis Plc.Congress also should limit inverted companies from using offshore profits that haven't been taxed by the U.S., said Edward Kleinbard, former chief of staff of the congressional Joint Committee on Taxation.Under the rule suggested by Kleinbard, that foreign loan would be subject to U.S. taxes, just as if the money had been loaned or repatriated to the U.S. parent company.
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