CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.
  1. Front Page
  2. News By Topic
  3. Republicans Renew Opposition To Section 385 Regs

Republicans Renew Opposition To Section 385 Regs

by Mike Godfrey,, Washington

23 August 2016

The leaders of the tax-writing committees in the US Congress have issued another warning to the US Treasury about the potentially negative economic impact of the proposed anti-inversion regulations under section 385 of the US tax code.

While Treasury said that it will revisit the proposed regulations after widespread criticism from tax and business communities, the Republican members of the House of Representatives Ways and Means Committee said they are "not confident" that Treasury has taken these concerns fully on board.

"We appreciate the Treasury Department's expressed commitment to making modifications to address some of the identified adverse effects of the proposed regulations," they wrote in a letter to Treasury Secretary Jacob Lew on August 22. "However, based on the information provided by Treasury to date, we are not confident that any such modifications would be sufficient to eliminate the harm that the proposed regulations would inflict on businesses and American workers if they were to be finalized in their current form."

The Treasury's temporary regulations seek to discourage corporate tax inversions by deterring earnings stripping, whereby US subsidiaries borrow from their new foreign parent company (or another foreign affiliate) to increase their interest payments, reduce their taxable income, and lower their exposure to US taxes. The regulations would allow the Internal Revenue Service to re-characterize certain debt instruments as equity under section 385 of the Internal Revenue Code.

The Tax Executives Institute was among a number of critics of the proposals, warning in its comments to the Treasury that the regulations "are overly broad, covering routine and non-tax motivated financing transactions, and appear intended to force multinational businesses to resort to third-party lending in almost all cases."

The proposed regulations were the subject of discussions between the Treasury's tax policy team and members of the Ways and Means Committee and Senate Finance Committee on July 6, at which the lawmakers urged officials to completely overhaul the proposals. Ways and Means Republicans also expressed their "grave concerns" about the regulations in a letter to the Treasury dated June 28, 2016, and their latest communication on the matter accuses the Department of ignoring widespread opposition to the proposals in an attempt to rush the regulations into place.

"Unfortunately, the clear message from your tax policy team was a single-minded intention to finalize the regulations 'swiftly,' the letter states. "As we emphasized at the July 6 discussion, the American people deserve a tax system that reflects accuracy and correct policy, not rules that are rushed out without proper vetting and consideration."

"We reiterate that the proposed regulations as crafted would interfere inappropriately with businesses' investment and financing decisions," the letter goes on to warn. "The proposal would have the effect of blocking the ability of businesses to operate effectively and efficiently and to grow and hire new workers. Ultimately, if the proposed regulations are not completely overhauled, they would damage our economy, increase the barriers to investment for American businesses and innovators, and interfere with the growth of the good-paying jobs American workers need and deserve. We cannot allow this to happen."

Similar fears about the Treasury's apparent desire to rush through the controversial changes were expressed by Senate Finance Committee Chairman Orrin Hatch (R - Utah) in a letter sent to Lew on the same day.

"I ask you to re-propose the regulations not because I wish for there to not be any section 385 regulations. Rather, I am seeking to ensure that, should the Treasury Department issue regulations under IRC section 385, the Department does so in a thoughtful, prudent, and legal manner," Hatch wrote.

Hatch said the regulations in their current form could lead to unintended consequences for American businesses given the administration's "expeditious pace" in advancing them, and joined his colleagues in the House by calling on the Treasury to redraft the proposals.

"The only prudent way to move forward – given the complexity of the subject matter, given the many significant substantive concerns that have been pointed out, and given the procedural irregularities – is to issue the regulations in re-proposed form."

TAGS: Finance | tax | investment | business | interest | law | corporation tax | transfer pricing | United States | regulation | Tax

To see today's news, click here.


Tax-News Reviews

Cyprus Review

A review and forecast of Cyprus's international business, legal and investment climate.

Visit Cyprus Review »

Malta Review

A review and forecast of Malta's international business, legal and investment climate.

Visit Malta Review »

Jersey Review

A review and forecast of Jersey's international business, legal and investment climate.

Visit Jersey Review »

Budget Review

A review of the latest budget news and government financial statements from around the world.

Visit Budget Review »

Stay Updated

Please enter your email address to join the mailing list. View previous newsletters.

By subscribing to our newsletter service, you agree to our Terms and Conditions and Privacy Policy.

To manage your mailing list preferences, please click here »