We previously began looking at the Treasury Departments recently announced rules aimed at ending the tax inversion practice of earnings stripping. By and large, corporations have not welcomed the new rules, for obvious reasons, though many tax experts are hopeful that they will be quickly overturned under a Trump administration.
Some in the field feel that Trump may end up retaining some aspects of the new rules, though, and are more cautious about the future. Corporations, in view of the uncertainty of the situation, should not expect that the new rules go away and are advised to mobilize compliance efforts.
One major aspect of compliance with the new tax rules is going to be documentation of whether loans involve true debt. The IRS has the power under the new rules to designate loans as equity rather than tax-sheltered debt, so companies need to provide ample documentation to support that debt.
Another task for multinational corporations is going to be evaluating debt structures between companies. Businesses will need to determine whether there is enough time to manage these arrangements according to the deadlines set forth in the new rules and whether the tax code provides any flexibility with regard to compliance in this area.
A third area where compliance efforts will be necessary is in determining which tax rules apply to transactions which occur during the transition to the new rules. Although the new rules don’t technically go into effect until 2018, companies should expect increased scrutiny even during the transition.
Compliance with tax regulations can be a complicated task for major corporations, and it is critical to work with experienced legal counsel to have solid advice and guidance. This is particularly important if the IRS decides to investigate a company for alleged noncompliance.