The proposal, which is intended to deter corporate tax inversions, would likely increase the cost of doing business for many U.S. companies with international operations. Should the regulations be finalized, it’s likely that many intracompany financings would be re-characterized as equity, creating overwhelming uncertainty for intercompany financing. The proposed rules could force companies to eschew routine business practices like cash pooling and rely on expensive external debt.
Treasury professionals have expressed concerns that the Treasury Department may not fully understand how cash pooling works and has not considered the enormous impact that disruption of pooling arrangements would have on efficient treasury management. “We have spoken to dozens of corporate treasurers and besides the possibility of having to reclassify some debt as equity, the documentation requirements of the proposal would be completely onerous,” said Craig Martin, Executive Director of AFP’s Corporate Treasurers Council. But while Treasury has indicated that it may be open to including an exception on cash pooling, as of yet, there has been no definite action to change the proposed rules.
“American companies are already faced with one of the heaviest tax burdens in the world,” said Jeff Glenzer, CTP, AFP’s Vice President and Chief Operating Officer. “In an effort to deter companies from pursuing corporate transactions that would lower their taxes, regulators seem willing to further handicap our economy by preventing companies from employing modern, widely-accepted cash management practices such as cash pooling.”
The advocacy groups named in the letter are urging policymakers to persuade Treasury to delay the effective date of the proposed debt-equity re-characterization rule until 90 days after the regulations are finalized. The groups also ask that the public comment period be extended from July 7 to October 5, and that Treasury dedicate adequate time to thoroughly review public comments rather than push to finalize the regulations prematurely.