Do the Anti-Conduit Regulations Delegate Authority to the IRS to Override Tax Treaties?

Do the Anti-Conduit Regulations Delegate Authority to the IRS to Override Tax Treaties?

Tax Law
By Anthony Diosdi Congress in 1993 added Section 7701(l) to the Internal REvenue Code. Section 7701(l) authorizes the Department of Treasury and the Internal Revenue Service (“IRS”) to promulgate regulations which allow for the “recharacterization” of multi-party financing transactions as a transaction directly among two or more of the parties to it if such characterization “is appropriate to prevent avoidance of any tax ***.” The IRS has implemented this authority by issuing “anti-conduit” regulations. The result of the anti-conduit regulations is that intermediate entities (“conduits”) are disregarded in the determination of U.S. taxes on international financing arrangements, which may include loans, leases, and licenses. The key factors that will result in the recharacterization of a conduit entity are:1) The participation of the intermediate entity or entities which reduces the tax…
Read More
Can a “Leveraged Lease or License” Avoid the New Anti-Conduit Regulations Revisited with a Touch of Hungarian Spice

Can a “Leveraged Lease or License” Avoid the New Anti-Conduit Regulations Revisited with a Touch of Hungarian Spice

Tax Law
By Anthony Diosdi Recently, the Internal Revenue Service (“IRS”) and the Department of Treasury (“Treasury”) issued a number of regulations and proposed regulations (the Proposed Regulations) that will restrict foreign persons’ ability to minimize U.S. tax through “conduit” financing arrangements. See REG-106013-19; 85 F.R. 19858-19873. The new final regulations and Proposed Regulations potentially impact a number of types of structures used by foreign persons for financing into the United States, and therefore these structures should be reevaluated. The discussion below first presents a brief overview of the 30 percent withholding tax as well as the “anti-conduit” rules, then describes if a properly structured “leveraged lease” is entitled to an exemption U.S. withholding tax. The 30 Percent Withholding TaxNon-U.S. taxpayers are subject to U.S. federal income taxation on a limited basis.…
Read More