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Pfizer, Allergan Ditch Merger Plan After New US Treasury Rules

A Pfizer flag is displayed in front of world headquarters in New York, Nov. 23, 2015.

Drug makers Pfizer and Allergan are abandoning their merger plan after the U.S. Treasury Department announced new rules seeking to curb corporate inversions used to lower a company's U.S. tax bill.

The two firms agreed to the merger last November in what amounted to a $160 billion deal. On paper it would have moved Pfizer to Ireland, like Allergan, where the corporate tax rate is much lower, and brought the combined company significant savings.

Under the terms of the merger contract, Pfizer will now pay Allergan $400 million to terminate the deal.

U.S. President Barack Obama did not specifically comment on the Pfizer plan Tuesday, but said tax avoidance is a "big global problem."

"A lot of it is legal and that's the problem," he said. "They're gaming the system. A lot of these loopholes come at the expense of middle class families. This is all net outflow of money that could be used here in the United States" to improve roads, schools and other government programs.

Obama called on the Republican-controlled Congress to permanently ban corporate inversions.

Treasury Secretary Jacob Lew also said ultimately it is up to Congress to pass new legislation to prevent companies from using the practice. He said until then, creative accountants will find new ways to avoid paying U.S. taxes.