Seeking to curb “excessive” use of related-party debt, Treasury and IRS retain basic framework, but significantly narrow the scope, of the Proposed Regulations.

On October 13, 2016, the US Department of the Treasury (Treasury) and the Internal Revenue Service (the IRS) issued final and temporary regulations under Section 3851 (the Regulations) regarding the US federal income tax treatment of certain related-party debt transactions. The Regulations, which maintain much of the fundamental framework of the April 2016 proposed regulations on the subject, will continue to reclassify intercompany debt as equity and to impose detailed documentation and other compliance requirements with respect to certain intercompany debt transactions. At the same time, the Regulations introduce various changes that will reduce the impact on many common intercompany transactions of multinational groups, particularly US-based multinationals.