Tax, Accounting & Legal
Published  5 MIN READ

How Proposed Regulation 385 Could Impact Corporate Treasury

How Proposed Regulation 385 Could Impact Corporate Treasury

by Rob Vettoretti, Managing Director, PwC Advisory


On 4 April 2016, the Internal Revenue Service (IRS) and the US Treasury Department issued proposed regulations under Section 385 targeting related party funding transactions, specifically addressing whether a debt instrument should be treated as debt, equity, or a combination thereof, for US federal income tax purposes. In addition, these proposed regulations would establish significant documentation requirements in order for certain related-party transactions to be treated as debt for US federal income tax purposes. 

Although these proposed regulations are intended to limit ‘earning stripping,’ using cross-border debt to reduce US income taxes, their application is so broad that they would impose prohibitive tax costs on many routine treasury activities and could have a profound impact on how treasury effectively deploys and manages cash globally.