(Bloomberg) The U.S. Treasury Department plans to release additional guidance this week aimed at deterring corporate inversions, though it can’t stop such tax-avoidance moves without new authority from Congress, Secretary Jacob J. Lew said.

The department will continue studying additional ways of curbing deals in which U.S. companies take foreign addresses to cut their tax rates, Lew said in a letter to several senior U.S. lawmakers obtained by Bloomberg. Shares of Allergan Plc, the Ireland-based drugmaker in talks to be taken over by New York-based Pfizer Inc., dropped 4.4 percent in extended trading on news of the Treasury’s plans.

“Later this week, we intend to issue additional targeted guidance to deter and reduce further the economic benefits of corporate inversions,” Lew said in the letter addressed to Oregon Senator Ron Wyden, the ranking Democrat on the Finance Committee. “It is important to emphasize, however, that Treasury cannot stop inversions without new statutory authority.”

The potential Pfizer-Allergan deal would be the drug industry’s biggest-ever acquisition and shift Pfizer’s legal address out of the U.S. to a lower-tax jurisdiction. Unless Congress acts, companies will keep moving their residences overseas and avoid paying taxes in the U.S., Lew wrote.

Earnings Stripping
The Treasury’s letter indicates that the new guidance probably won’t stop the Pfizer-Allergan deal, said Stephen Myrow, managing partner of Beacon Policy Advisors LLC, a policy research firm in Washington. He expects the rules to address earnings stripping, a maneuver that inverted companies use to effectively shift earnings to lower-tax countries and reduce the amount of income taxed at the U.S. rate of 35 percent, the highest in the industrial world.

Douglas Poms, senior counsel in the Treasury’s office of the international tax counsel, said on Nov. 4 that the agency continues to consider earnings stripping regulations.

“As before, we will continue to review our existing authorities to identify additional ways to address this serious problem,” Lew wrote, noting that the department has reviewed “a broad range of options for further action” since issuing guidance last year.

Political Criticism
Tax inversions have been criticized by U.S. lawmakers and presidential candidates. Last year the Treasury Department issued a proposal intended to discourage the moves, which typically only change a company’s legal address while the operating headquarters stays in the U.S.

Allergan, for example, is run from New Jersey and has a Dublin tax address.

“The fact that American companies, including Pfizer, continue to pursue inversions makes clear that additional steps are needed to stop this trend,” Sander Levin, the ranking member of the House’s tax-writing committee, said in a statement Wednesday. “I am encouraged that Treasury intends to take additional steps to curb tax inversions, but also recognize that their authority in this area is not unlimited.”

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