The Obama administration took action Monday to discourage corporations from moving their headquarters abroad to avoid U.S. taxes, announcing new rules designed to make such transactions significantly less profitable. (Jacquelyn Martin/Associated Press)

The Obama administration took action Monday to discourage corporations from moving their headquarters abroad to avoid U.S. taxes, announcing new rules designed to make such transactions significantly less profitable.

The rules, which take effect immediately, will not block the practice, and Treasury Secretary Jack Lew again called on Congress to enact more far-reaching reforms. But in the meantime, he said, federal officials “cannot wait to address this problem,” which threatens to rob the U.S. Treasury of tens of billions of dollars.

“This action will significantly diminish the ability of inverted companies to escape U.S. taxation,” Lew told reporters. “For some companies considering deals, today’s action will mean that inversions no longer make economic sense.

“These transactions may be legal, but they’re wrong,” he added. “And the law should change.”

Tax analysts praised the new regulations, saying they will make it much harder for U.S. firms to bring cash earned abroad back to the United States tax-free — a major incentive in the relocations known as tax “inversions.” It was not immediately clear, however, whether the new rules would be sufficient to head off a wave of inversions expected to cascade over the American landscape in the weeks before the Nov. 4 midterm congressional elections.

“For some companies considering deals, today’s action will mean that inversions no longer make economic sense,” Treasury Secretary Jack Lew said on Sept. 22. (Mark Wilson/Getty Images)

The pace of inversions has quickened in recent months, with such American icons as Burger King and Chiquita Brands announcing mergers with foreign firms and plans to move their tax homes to countries with lower rates. President Obama and other Democrats have seized on the issue, attacking the patriotism of inverted companies and calling on Republicans to join them in banning the practice.

But Republican lawmakers have been unmoved, arguing that the increase in inversions is the direct result of a dysfunctional U.S. tax code and the failure of the White House to aggressively pursue an overhaul. In addition to imposing a 35percent corporate tax rate that is the highest in the developed world, the United States is the only advanced nation that taxes profits that domestic firms earn outside its borders.

“We’ve been down this rabbit hole before. And until the White House gets serious about tax reform, we are going to keep losing good companies and jobs to countries that have or are actively reforming their tax laws,” House Ways and Means Committee Chairman Dave Camp (R-Mich.) said in a written statement. “A few campaign-style speeches and stopgap measures from Treasury won’t do it.”

Democrats applauded Treasury’s action, but they, too, said more must be done.

“The administration has made a good effort but administrative action can only go so far,” Sen. Charles E. Schumer (D-N.Y.) said in a written statement. “This rule may make some companies think twice before inverting, but legislation is still sorely needed.”

The new regulations are still being drafted, but senior Treasury officials said on a conference call with reporters that they would apply to inversion deals sealed on Tuesday or thereafter. Eight inversions are pending, according to Bloomberg News, including Burger King’s planned merger with the Canadian doughnut chain Tim Hortons.

Under the new rules, inverted companies would no longer be able to take advantage of so-called “hopscotch loans,” a maneuver aimed at giving them tax-free access to cash earned abroad. The rules also would make it more difficult for U.S. firms to invert in the first place by strengthening rules that require the former owners of the U.S. company to own less than 80 percent of the new, foreign-domiciled entity.

Senior Treasury officials said additional regulations may be forthcoming, including provisions aimed at preventing inverted firms from shifting a portion of their U.S. profits to the foreign, low-tax jurisdiction.

University of Southern California law professor Edward Kleinbard, former chief of staff of the congressional Joint Committee on Taxation, called the new rules “very bold and far-reaching” and “likely to affect many transactions that are motivated by gaining access to offshore cash.”

While some may argue that Lew is overstepping his authority, Kleinbard said, “questions of regulatory authority really are beside the point because no board of directors will roll the dice on that issue.”