• Administration cites possible repeal for delay
• Rules target multinational intercompany debt
The Treasury Department and the Internal Revenue Service will delay the documentation requirements of controversial multinational earnings-stripping regulations until 2019.
The 12-month delay, announced July 28 in Notice 2017-36, will apply to interest that is issued or deemed to be issued on or after Jan. 1, 2019. The requirements were to have been effective in 2018.
Treasury said it was responding to concerns taxpayers have raised, and “in light of further actions concerning the final and temporary regulations under section 385 in connection with the review of those regulations.” The Trump administration has identified rules issued in 2016 under tax code Section 385 for possible repeal under an executive order to reduce undue burdens on business. Treasury is to issue a report with recommendations for all of the Section 385 regulations, as well as others, by Sept. 18.
The final and temporary regulations (T.D. 9790) introduced new loan documentation requirements and other rules for intercompany debt. The rules were issued under tax code Section 385, which gives Treasury the authority to distinguish between debt and equity, affecting whether a company can recognize tax-deductible interest payments. The move was part of an effort by the Obama administration to crack down on corporate inversions, as it mainly affected foreign-based multinational companies with subsidiaries in the U.S.
The agency is looking for comments by Sept. 1 about whether the delay will give companies enough time to set up systems to comply with the documentation requirements.
A number of tax practitioners had urged the government to announce soon what it would do with respect to the Section 385 rules that are under review, because companies were uncertain about whether to start developing complex documentation processes.
“This common-sense decision ensures that funds which could be used for expansion and job creation are not diverted to complying with a discriminatory regulation that Treasury may ultimately rescind,” said Nancy McLernon, president of the Organization for International Investment, which represents foreign firms with subsidiaries in the U.S.
The notice also drew quick condemnation from the administration's critics.
“Those corporations, who would renounce their citizenship in America to avoid paying their fair share for our national security and other vital public services, just received encouragement from President Trump to continue,” Rep. Lloyd Doggett (D-Texas) said in a statement. “What a contradiction from Trump's empty promises to stop American companies from moving offshore.”
Notice 2017-36 is scheduled for publication Aug. 14 in Internal Revenue Bulletin 2017-33.
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