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Spotlight

Although finalization of the proposed Section 385 debt/equity regulations is coming, a Treasury official this week was quoted as saying there is no set deadline. Treasury deputy international tax counsel Douglas Poms indicated the government remains committed to finalizing the regulations, but said there would be changes, including some form of exception for cash pooling arrangements, "but with certain caveats" to prevent abuse.

The Treasury official also defended the 72-month per se rule in the proposed regulations, saying the government went with a bright line test due to administrative concerns. Poms noted the government's general lack of resources and success in litigating subjective tests. (Proposed regulation Section 1.385-3 provides a non-rebuttable presumption that an expanded group debt instrument is issued with a principal purpose of funding a distribution or acquisition if it is issued by the funded member during the period beginning 36 months before the funded member makes a distribution or acquisition and ending 36 months after the distribution or acquisition.)

In FATCA news, the US and Singapore issued a joint statement this week saying the two governments are committed to concluding a reciprocal FATCA intergovernmental agreement (IGA) providing for the automatic exchange of information, as well as to finalizing a tax information exchange agreement as soon as possible, but before the end of 2017. The US and Singapore originally signed a Model 1 IGA that entered into force in March 2015.

And, in IRS Announcement 2016-27, the Service indicated that beginning 1 January 2017, Treasury will begin updating the US IGA list to provide that jurisdictions that have not brought their IGA into force will no longer be treated as if they have an IGA in effect. Jurisdictions with an IGA not in force that wish to be treated as having an IGA in effect will need to provide Treasury with a detailed explanation by 31 December 2016 explaining why the IGA is not in force as well as a plan to sign an IGA (if not yet signed) with the United States and bring it into force.

The US Chamber of Commerce and the Texas Association of Business on 4 August filed a lawsuit in the US District Court for the Western District of Texas challenging the IRS and Treasury corporate inversion regulations that were issued last April. The regulations modify the application of Sections 7874 and 367 to inversion transactions and limit the US tax benefits of certain post-inversion planning. The lawsuit argues the regulations violate the Administrative Procedure Act (APA). In a statement, the Chamber of Commerce contends the government ignored the APA's prior notice or comment requirements in regard to the multiple acquisition rule in the regulations.