The interest expense limitation rules were modified by the Tax Cuts and Jobs Act (TCJA) in December 2017. On 26 November 2018, the Internal Revenue Service (IRS) released proposed regulations and related guidance.
For multinational companies, it is important to know that the proposed regulations clarify that the changes to the interest expense limitation rules apply to controlled foreign corporations (CFCs) in the same manner they
apply to a domestic C corporation. For instance, the new interest limitation rules have to be used when computing subpart F income to be included in the taxable income of the parent company. However, the proposed regulations allude to certain cases where the application of the new interest limitation rules can be modified.
The Treasury Department and the IRS continue to study whether additional modifications to the application should be provided. This could include situations where a CFC is exempt from the application of the new interest limitation rules.
Taxpayers should look out for the publication of the Treasury decision adopting the proposed regulations as final in the Federal Register as the regulations are applicable to tax years ending after the date of the publication. However, taxpayers and their related parties may apply the proposed regulations to tax years ending after 31 December 2017 under certain conditions. Consequently, the proposed regulations would not be retroactive to the date that the TCJA was enacted.
If you believe the above measures may impact your business or require any advice with respect to US taxation, please contact Ralf Ruedenburg at email@example.com or call +1 646 965 7778.