The Conduit Regulations and Multinational Financing Transactions Between Cross-Border Subsidiaries
By Anthony Diosdi It has been more than 25 years since Congress enacted Section 7701(1) of the Internal Revenue Code and the Department of Treasury (“Treasury”). These provisions authorize the Internal Revenue Service (“IRS”) to recharacterize any multiple-party financing transaction as a transaction directly between two or more parties if it is determined that reclassification is necessary to prevent the avoidance of U.S. tax. Last year, on April 8, 2020, Treasury issued new proposed regulations which would make changes to the current conduit regulations. Anyone involved in the planning of multinational corporate finance transactions, must understand the conduit regulations. This article is designed to provide an introduction to the conduit finance rules which govern the transfer of funds among subsidiaries in different countries. The 30 Percent Withholding TaxHistorically, foreign taxpayers…