Proposed Treasury Regulations Permit Foreign Subsidiary Credit Support For U.S. Multinational Financings

The proposed regulations, released October 31, 2018, generally provide tax-free treatment to a U.S. corporate parent of a controlled foreign corporate subsidiary ("CFC") for deemed dividends triggered when the CFC provides credit support for the U.S. corporate parent's debt.

These regulations under Code section 956 will become applicable in taxable years beginning on or after the date the regulations are finalized, and they may be relied upon in proposed form in taxable years beginning after December 31, 2017.

U.S. multinational borrowers potentially can expand their borrowing capacity and gain flexibility on investments in foreign subsidiaries. Lenders potentially can expand their collateral and guarantee packages by including guarantees by, and full pledges over the stock and assets of, CFCs or by incurring joint and several liability.