Salix Pharmaceuticals and Italy's Cosmo Pharmaceuticals have ended a $2.7 billion merger agreement that would have given the US company an Irish base, the first time a US company has blamed tougher rules for scrapping a plan to move overseas for lower taxes.

Salix will make a $25 million payment to Cosmo, the companies said in a statement today. Salix is in talks to sell itself to Actavis.

The scrapped deal is the first evidence that rules adopted last month by the US Treasury Department are succeeding in curbing cross-border, tax-reducing deals known as tax inversions that have helped drive a record period of industry mergers.

“The changed political environment has created more uncertainty regarding the potential benefits we expected to achieve,” Salix chief executive Carolyn Logan said in the statement on the Cosmo deal.

The congressional Joint Committee on Taxation has estimated that a bill to curb inversions would raise about $20 billion over the next decade. Though an agreement between Salix and Actavis isn’t imminent, it has become more likely in the past week, sources said.

The Cosmo deal, announced in July, called for Salix to combine with Cosmo Technologies, an Irish unit of Cosmo Pharmaceuticals, to create a company based here.

Bloomberg