On October, 13, 2016, Treasury issued final, temporary and proposed regulations to section 385 ("Final Regulations"), significantly narrowing the scope of the Documentation Rule and Per Se Recast Rule in response to heavy concerns raised during the comment period.
The Final Regulations extend the effective date of the Documentation Rule to taxable years ending on or after January 19, 2017 with respect to Applicable Interests issued or deemed issued on or after January 1, 2018. In addition, the Final Regulations limit the scope of the Documentation Rule by type of instrument and by type of issuer, and specify the substantive requirements, including documentation requirements and requirements to perform financial analysis, due dates for compliance, and consequences of compliance and non-compliance.
Additionally, the Final Regulations establish the effective date of the Per Se Recast Rules, applying to taxable years ending on or after January 19, 2017. The Final Regulations also limit the scope of the Per Se Recast Rule to CDIs issued by a Covered Member to another member of the Expanded Group, as well as defining types of instruments that can be CDIs and nature of companies that can issue CDIs.
The alert addresses the impact on US- and foreign-based multinational corporations, what they should be aware of as these regulations are administered, and provides a detailed discussion on the significant changes from the Proposed Regulations to the Final Regulations, including the Documentation and Per Se Recast Rules.