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Treasurers Brainstorm Solutions to 385 Regs

  • By Andrew Deichler
  • Published: 6/15/2016

MINNEAPOLIS -- Treasury professionals held a brainstorming session Tuesday afternoon on ways to appeal to the Treasury Department over its controversial update to section 385 of the IRS tax code during the latest meeting of AFP’s Treasury Advisory Group.

A number of advocacy groups have sent comment letters to Treasury Secretary Jacob Lew expressing concerns about the proposed regulations and offering alternatives, but the Treasury Department has been largely unresponsive. There could be a glimmer of hope for corporate treasury functions, however; Treasury has indicated that it may be open to including an exception for cash pooling. If so, that would be good news for treasurers, because as one TAG member put it, the proposed regulations are “going to cause cash pooling to be a mess.”

An assistant treasurer for a major pharmaceutical company stressed that if groups like AFP want to make any headway with Treasury here, they need to steer clear of debates over corporate tax reform and other issues and focus specifically on cash pooling. “Cash pooling is getting caught in this inversion ruling and that doesn’t make sense,” he said.

Another TAG member who works for a major investment firm agreed. “Maybe if nothing else, we send a comment letter to Treasury explaining that they may not fully recognize the fact there are these very common arrangements that are swept in,” she said.

A bank representative in attendance concurred that educating Treasury on the prevalence of cash pooling in international business is key here. “We’ve talked to all of the tax firms and some have said that Treasury didn’t have a full appreciation for cash pooling,” he said. “We should explain to them, in the most boring possible terms, the benefits and use cases of cash pooling in day-to-day operations. It could almost make it impossible for them to say, ‘This is what we intended.’”

However, the banker noted that it may be very hard for Treasury to craft a carve-out for cash pooling. “I don’t think anybody has come out with a great answer for what that carve-out would look like,” he said. “But if we could make the case that there really should be one—that could help.”

The language of any potential carve-out will be very essential here, as Treasury doesn’t want to create a giant loophole, noted another treasurer. Otherwise companies could exploit it to skirt around the regulations. “They could start saying, ‘that’s part of my cash pool, that’s part of my cash pool,’” noted one treasurer.

To start, the group suggested listing three to five attributes that distinguish normal, everyday cash pooling and presenting that to Treasury. But any action needs to be taken quickly. The comment period on the proposed regulations ends on July 7, and it appears unlikely that it will be extended further.

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