June 27, 2016

MSCI Partners Working To Fight Treasury Rules That Could Impose New Taxes On Manufacturers

MSCI partners at the National Association of Manufacturers (NAM) and the S-Corp Association are working to oppose proposed U.S. Department of Treasury regulations that give the Internal Revenue Service (IRS) broad latitude to unilaterally treat a company’s related party debt as equity, a move that would overturn longstanding tax policy and well-established case law. 

As the NAM has explained, debt is fundamental to the structure of a business, and the proposal, which will result in new taxes on manufacturers by eliminating interest deductions and subjecting some dividend payments to withholding taxes, threatens legitimate and well-established business practices, from corporate reorganizations to day-to-day cash management. While the Treasury proposal was released as part of a package of guidance designed to curb cross-border mergers like inversions, these extremely broad regulations have little to do with this activity, but instead will have a significant negative impact on a wide range of global and domestic manufacturers in the United States. Indeed, as the S-Corp Association has argued, these rules will affect domestic business practices. 

The NAM will be filing comments on the regulations by Treasury’s July 7 deadline. As part of its advocacy efforts, the NAM needs additional data to quantify the burdens created by these proposed regulations. MSCI encourages its members to help NAM’s efforts by answering this survey before July 1. 

To learn more about this issue, please read this recent editorial from The Wall Street Journal and check out this S-Corp Association presentation, which explains how the rules could affect small businesses. 

There is growing bipartisan opposition to these rules. As Politico’s “Morning Tax” explained last week, 11 Democrats on the House Ways and Means Committee have written to Treasury Secretary Jack Lew asking for a meeting to discuss how “to soften the blow from the regulations.”