Major U.S. Tax Debt/Equity Rules Finalized

On Thursday, October 13, the Internal Revenue Service and Treasury Department issued their much anticipated final and temporary regulations under Section 385 of the Internal Revenue Code, which are expected to permanently reshape the way multinationals do business. These "debt/equity" regulations provide rules that recharacterize certain cross-border intercompany debt instruments as equity for U.S. tax purposes. When the IRS and Treasury first published proposed regulations under Section 385 on April 4, 2016, these rules sent shockwaves through U.S. tax circles and, more broadly, the international business community, by radically changing their calculus for determining when debt instruments would be respected as debt for U.S. tax purposes.