Jacob J. Lew, Secretary of the Treasury of the United States, speaks during the North American Energy Summit, held at headquarters of Goldman Sachs Inc. in New York, U.S., on Tuesday, June 10, 2014. Photographer: Jin Lee/Bloomberg *** Local Caption *** Jacob J. Lew

Washington - The US government has called for immediate congressional action to stop American companies from using cross-border mergers to escape the country’s tax system, the latest trend in corporate deal-making.

In a letter calling for a “new sense of economic patriotism”, Treasury Secretary Jacob Lew said Congress should approve tax changes retroactive to May.

“We should prevent companies from effectively renouncing their citizenship to get out of paying taxes,” Lew wrote in the letter to top congressional tax writers. “We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes.”

The mergers used to legally avoid taxes, known as inversion transactions, have become increasingly popular over the past year, particularly in the pharmaceutical industry.

Firms such as Medtronic and Mylan have announced their intention to move their legal addresses outside the US.

Pfizer attempted to move its tax address to the UK by purchasing London-based AstraZeneca. Lew’s letter may not be enough to prompt Congress to move quickly.

Democrats including Representative Sander Levin and Senator Carl Levin have already introduced bills that echo the administration’s approach.

Those measures have not advanced because of Republicans’ insistence that any changes be made as part of a broader revamp of the tax code that is not likely to happen until next year at the earliest.

In inversions, US-based businesses purchase a foreign firm, then switch the legal address to take advantage of the foreign jurisdiction’s favourable tax rules. In many cases, the firms’ executives remain in the US.

More recent deals, including Medtronic’s merger with Dublin-based Covidien, include clauses that allow the firms to walk away if Congress changes the tax law.

The administration and legislators in both parties favour major tax code changes that would lower the 35 percent corporate rate and tighten international tax rules. They have been unable to agree on the details or on changes to individual taxation.

Senate finance chairman Ron Wyden, an Oregon Democrat, had supported a retroactive bill and wanted to wait to enact it until broader tax law changes happened.

He has altered that position, and he said on Monday that he had one foot in both camps and could see a rationale for moving quickly. “If there’s one of these [deals] every 72 hours there’s going to be a pretty big drumbeat to do something quickly,” he said.

Wyden’s panel is planning a hearing on international taxation, including inversions, for Tuesday. He has not said whether or when he would attempt to move legislation.

The government has proposed making it impossible for a US-based company to purchase a smaller foreign competitor and take that other company’s address.

That proposal would raise $17 billion (R182bn) over the next decade, according to the administration. – Bloomberg