Mega deals, like the killed $160 billion merger of Pfizer Inc. (NYSE: PFE) and Botox maker Allergan Plc (NYSE: AGN), aren’t the only transactions that will be affected by the U.S. Department of the Treasury’s new rules aimed at curbing tax inversions. There will also be consequences for cross-border M&A in the middle market.

Tax experts warn that the rules, some of which went into effect in April, could have an impact well beyond their intended purpose, which is to hinder mergers in which a U.S. company is acquired by a smaller non-U.S. company so that the combined company's assets will enjoy lower taxes under the foreign domicile. For the middle market, the list of possible negative consequences is long—even for deals not aimed at tax inversions. The consequences include: increased legal and compliance costs for cross-border deals; discouraging foreign investors; and hampering tax-exempt investors.

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