Trump Order Takes Aim at Tax Regulations Imposed by Obama

WASHINGTON — President Trump ordered his Treasury Department on Friday to review measures put in place by the Obama administration, setting the stage for a rollback of regulations that were intended to curtail corporate tax evasion and prevent another financial crisis.

The executive order and two presidential memorandums come as Mr. Trump is scrambling for achievements as the 100-day mark in the White House approaches. Frustrated by the slow pace of action in Congress on his goal of overhauling the 2010 Dodd-Frank financial regulation law and the fact that his mission of rewriting the tax code remains in limbo, Mr. Trump is trying to take matters into his own hands.

“This has to do with the complexity of tax regulations,” Treasury Secretary Steven Mnuchin said at a briefing ahead of the signing on Friday. “The president wants to make clear to the American people that we are going to fix the tax code.”

Mr. Trump has made deregulating the financial industry a priority of his presidency. Critics of the president said that if the reviews he requested became policy, that would represent a return to the freewheeling days that led to the 2008 financial crisis.

“From our perspective, it is a direction that is dramatically backwards on financial stability,” said Lisa Donner, executive director of Americans for Financial Reform.

The presidential order asks Mr. Mnuchin to review the tax regulations imposed by President Barack Obama in 2016. Those include efforts to clamp down on corporate inversions, in which American companies merge with foreign companies to take advantage of lower tax rates abroad.

Viewed alone, undoing the rules would appear to be at odds with Mr. Trump’s campaign pledge to reduce incentives for companies to invert.

Last year, Mr. Obama’s Treasury Department, concerned about Pfizer’s $152 billion bid to acquire Allergan, which makes Botox, issued rules to thwart inversions. They included regulations to prevent moves like “earnings-stripping,” in which an American subsidiary borrows from a parent company and uses the interest payments on the loans to offset its earnings.

The uproar over inversions dogged a number of transactions in the last five years, including Burger King’s takeover of the Canadian chain Tim Hortons and the drug maker AbbVie’s planned acquisition of an Irish rival, Shire.

But the biggest target of such outrage was Pfizer’s acquisition, by far the biggest effort by a company to give up its American citizenship to cut its taxes. Pfizer first raised the issue when it sought to buy another international rival, AstraZeneca of Britain, with the intent of moving its corporate citizenship overseas.

Pfizer executives expected pushback from the Obama administration, but were surprised by how aggressive the White House was in fighting the deal. Within a few months, Pfizer and Allergan ended their agreement.

The Treasury Department’s ability to act was limited to tinkering with existing regulations, since a wholesale ban on inversions would have required Congress to overhaul the tax code.

“These actions took away some of the economic benefits of inverting and helped slow the pace of these transactions, but we know companies will continue to seek new and creative ways to relocate their tax residence to avoid paying taxes here at home,” Jacob J. Lew, then the Treasury secretary, said at the time.

But its measures, from adjusting the treatment of earnings stripping to new ways of taxing overseas cash, still managed to kill a number of these deals. AbbVie backed away from its planned takeover of Shire and Pfizer walked away from the Allergan deal.

The Treasury Department “reinterpreted longstanding tax principles in a uniquely selective manner designed specifically to destroy the financial benefits of these types of transactions,” AbbVie said when announcing the demise of its Shire transaction.

Robert Willens, an independent tax consultant, said reversing these rules would be a gift to Wall Street bankers and lawyers who have complained that international deal making has been hampered by the regulations.

“They’ll be dancing in the streets and jumping for joy,” Mr. Willens said.

The memorandums to the executive order ask Mr. Mnuchin to review the Orderly Liquidation Authority, a tool created by the Dodd-Frank law for unwinding financial institutions that are on the verge of collapse. Many banks have been hopeful that Congress will repeal the system. The administration is examining whether it encourages excessive risk-taking or exposes taxpayers to potential liabilities.

Treasury is also reviewing the Financial Stability Oversight Council, which designates financial institutions as “systemically important,” better known as “too big to fail.” It requires them to hold more capital in reserve in the event of financial emergencies.

Senator Sherrod Brown, Democrat of Ohio, assailed Mr. Trump for trying to undermine rules that were put in place to protect the economy: “Any actions to undermine these protections encourage Wall Street’s risky behavior and leave taxpayers and our economy exposed to another catastrophe.”

Mr. Brown said that Mr. Trump appeared to be breaking a campaign promise by making it easier for companies to use inversions.

“We should be working to lower taxes for hardworking families and workers across Ohio, not helping multimillion-dollar corporations cheat the system to avoid paying their fair share,” Mr. Brown said.

Mr. Mnuchin insisted that this would not be the case. He said that the administration was working on a soon-to-be released comprehensive tax reform plan that would address the problem of companies moving overseas.