Treasury Proposes New Rules on Intercompany Debt

On April 4, 2016, the U.S. Department of Treasury issued temporary regulations intended to stifle corporate inversions. Subsequent to such inversions, companies often engage in so-called “earnings stripping” transactions, in which intercompany debt is used to create deductible interest in the U.S. that is paid to the new foreign parent or another related entity in a lower tax jurisdiction. To limit the latter practice, Treasury issued separate, proposed regulations that address the use and characterization of intercompany debt. If finalized, these rules could have one of the most profound impacts in recent U.S. tax rule-making.