Taxand UK summarises how the final regulations may generally impact US and non-US multinationals.
On the evening of October 13, 2016, the United States Treasury Department and IRS released final and temporary Section 385 Regulations (Final Regulations) regarding purported related-party debt instruments. These Final Regulations revise the highly controversial proposed regulations issued in April 2016 to address a number of concerns identified during the public comment period. Earlier last week, our US A&M Taxand colleagues spoke at the Tax Executive Institute’s annual conference to share their insights and confirm their thinking on key portions of the regulations with other tax practitioners as well as many Treasury Department officials.
While this article summarises how the final regulations may generally impact US and non-US multinationals and provides an overview of the key provisions (noting significant changes from the proposed regulations), here are a few key points for non-US multinationals:
The extensive and highly complicated Final Regulations can present a host of unintended and harmful consequences for the ill-prepared taxpayer. With the harsh penalty of a transaction intended to be debt being automatically recast as equity, all taxpayers should analyse these rules when entering into intercompany debt instruments.