Is it Debt or is it Equity? Proposed Section 385 Regs Create Additional Tax Hurdles

Is it Debt or is it Equity? Proposed Section 385 Regs Create Additional Tax Hurdles | Neil Bass

Intercompany transactions can be tricky. When a parent company transfers funds to a subsidiary, a variety of questions pop up. Is it an equity contribution? A loan? A combination of the two? For tax purposes, the underlying facts supporting the equity vs. loan position generally prevail. The determination of whether an intercompany transfer is debt or equity can have significant ramifications. Can the subsidiary deduct interest payments? Are the upstream transfers subject to withholding taxes?

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