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Treasury impact of proposed regulations in Section 385 - TAG consultant’s advice

The Treasury Alliance Group in the USA have issued a briefing note on proposed new rules under Section 385 of the US tax code dealing with related party transactions which raising concerns that intercompany arrangements and liquidity structures, such as cash pooling, may be scrutinized and penalized by the IRS as a result of these rules. TAG believe that this risk is small for properly documented and managed treasury structures.

“Treasury Alliance Group believes that an explicit objective of the proposed update to the 385 regulation relates to clarifying and documenting the nature and intent of related party transactions in order to disqualify debt instruments that should be reclassified as capital. So, it’s important for concerned treasurers and tax advisors to review the potential impact on all types of intercompany cash flows which can include:

  • Intercompany receivables and payables
  • Multi-lateral Netting 
  • Short-term inter-company loans
  • Physical cash pooling
  • Notional cash pooling.”

TAG’s note, see, concludes that, “corporate treasury in conjunction with their tax advisors should understand potential areas of impact with any inter-company arrangements now in place. It may be prudent to refresh pooling documentation and clarify the arm’s length nature of any IHB or Treasury Center activities.


CTMfile take: Definitely worth a read.

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This item appears in the following sections:
Cash & Liquidity Mngm in North America
Cash Concentration
Liquidity Risk Management

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