The going has been tough for the healthcare space has this year following the slide in biotechnology stocks. The pain seems to have aggravated since the U.S. Treasury Department and Internal Revenue Service imposed tougher rules to curb ‘tax inversion' deals. This is especially true as the Treasury levied a three-year limit on foreign companies bulking up U.S. assets to avoid ownership limits for a later inversion deal.
This means that the new rules would restrict the U.S. companies to participate in inversion transactions if they have already done so within the past three years. Additionally, the Treasury also proposed rules against the practice known as earnings stripping often undertaken following an inversion. In this regard, the new rules would curb related-party debt for U.S. subsidiaries in transactions that do not finance new investments in the United States (read: Trump Healthcare Reforms: Will ETFs Gain Health or Suffer?).
A Near-Term Blow?
Tax inversion deals have been extremely popular among the drug companies and medical device makers, and were one of the major drivers of the healthcare space in the past few years. In tax inversion, U.S. companies acquire foreign companies to relocate their headquarters offshore in order to reduce or avoid tax bills. Notably, the U.S. has a higher corporate tax rate of 35% while other countries like the U.K. and Ireland have lower rates of 20% and 12%, respectively.
The new rules dealt a huge blow to the proposed $160 billion Allergan ...
/www.benzinga.com/etfs/sector-etfs/16/04/7810319/new-tax-inversions-rules-threats-to-healthcare-etfs alt=New Tax Inversions Rules: Threats To Healthcare ETFs?>Full story available on Benzinga.com
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