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(Bloomberg) — The U.S. strengthened efforts to discourage corporate inversions by making the deals more difficult and limiting the benefits of the transactions, just as an iconic American firm considers shifting its legal address abroad to cut its taxes.

Inversions — deals where U.S. companies take foreign addresses and cut their tax rates — became a political flash point last year and may reemerge as a contentious issue in Washington. This week, New York-based Pfizer Inc. is in talks to become the largest company ever to escape the U.S. tax system through a takeover of Ireland-domiciled Allergan Plc.

Some of the Treasury Department’s changes announced Thursday will affect transactions that close today or after, whereas others apply retroactively to those completed after September 2014.

“These actions further reduce the benefits of an inversion and make these transactions even more difficult to achieve,” Treasury Secretary Jacob J. Lew said on a conference call with reporters Thursday. “This is an important step, but it is not the end of our work. We continue to explore additional ways to address inversions — including potential guidance on earnings stripping — and we intend to take further action in the coming months.”

In its second round of inversion rule changes in 14 months, the Treasury said it’s reducing the tax benefits of inversions by limiting the ability of an inverted company to transfer its foreign operations to the new foreign parent without paying U.S. tax, according to a statement released in Washington. These actions apply to inversions completed on or after Sept. 22, 2014, the department said.

Some analysts reviewing the new guidance said it may not affect a Pfizer-Allergan deal.

The latest rules “will likely deter other inversions from going forward by making it more difficult, but I don’t think this will deter the Pfizer-Allergan deal,” Elizabeth Krutoholow, an analyst with Bloomberg Intelligence, said in an e-mail.

Pfizer shares dropped 3.1 percent to $32.29 in New York and Allergan fell 2.8 percent to $302.05. Shares of CF Industries Holdings Inc., a Deerfield, Illinois-based fertilizer maker that is seeking a British tax address, declined 6.1 percent Thursday.

The Treasury also sought to stop inversions in which a U.S. company buys a smaller foreign company and then uses the transaction to establish a new tax address for the combined firm in a third country. The department expects the biggest impact on inversions will come from that change, as some companies set up a unit in a third country without any real connection to the transaction, a Treasury official told reporters on the call.
Becoming Irish

For example, Endo International Plc, a drugmaker run from Pennsylvania, was once a U.S. company that became Irish for tax purposes by buying a smaller Canadian competitor. The Treasury rules “will prevent U.S. firms from essentially cherry-picking a tax-friendly country in which to locate their tax residence,” the Treasury said in a statement.

“Treasury’s guidance does not appear at first reading to be focused on any specific merger,” said Terry Haines, an analyst at Evercore ISI. “Rather, it is an attempt to flesh out its array of anti-inversions weapons.”

Pfizer is at a competitive disadvantage by having its tax domicile in the U.S., Chief Executive Officer Ian Read said at a event hosted by the Wall Street Journal last month. Foreign companies with a lower tax rate can invest more in research, he said.

Tax inversions have been criticized by U.S. lawmakers, and presidential candidates including Donald Trump have called for changes in corporate tax rates to keep U.S. companies from moving.

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.

“We welcome efforts from Treasury to curb overseas tax inversions,” Oregon Senator Ron Wyden, the ranking Democrat on the Finance Committee, said in a statement. “Ultimately it’s up to Congress to deliver tax policy that better equips companies to compete and succeed by staying in the U.S. And the only way to get that done, and end the inversion virus that is plaguing our country, is through true bipartisan tax reform.”

Sander Levin, ranking member of the tax-writing House Ways and Means Committee, said “the rumors that Pfizer may announce its plans to invert as soon as next week, making it potentially the largest inversion ever, highlights the urgent need for Congress to act.”

–With assistance from Zachary R. Mider and Billy House.

To contact the reporters on this story: Kasia Klimasinska in Washington at kklimasinska@bloomberg.net; Andrew Mayeda in Washington at amayeda@bloomberg.net To contact the editors responsible for this story: Carlos Torres at ctorres2@bloomberg.net Brendan Murray