Special Report Focuses on Sec. 385 Debt-Equity Regulations

Thomson Reuters has released a special report on the recently proposed Treasury regulations under Section 385 of the Internal Revenue Code which, if finalized, would dramatically disrupt the treatment of intercompany debt issued among members of certain corporate groups. The Thomson Reuters Checkpoint report, The New Section 385 Proposed Regulations: No More Alice in Wonderland, provides an overview of the proposed regulations and a discussion of their implications.

“The Section 385 regulations are possibly the most significant income tax regulations ever,” said Kevin M. Cunningham, managing director of KPMG LLP in the International Tax group in Washington D.C. and a Checkpoint contributor. “Given the broad scope of these regulations, it’s difficult to predict the extent to which multinational enterprises will be affected, and it’s obviously essential that multinationals start planning for finalization now in order to ensure as smooth a transition as possible.”

The report explains the different factors under the proposed regulations that would determine how certain debt transactions would be characterized. The report outlines the types of transactions likely to be addressed under Section 385. It explains the regulations’ funding and anti-abuse rules as well as the types of instruments and debt issuers subject to the proposed regulations. The report also discusses the documentation and information requirements multinational enterprises must satisfy in order to meet the requirements of the regulations and addresses the implications of non-compliance.