By: Tom Geraghty, Michael Greenberg and Zachary Nolan

On October 31, 2018, the US Treasury and the IRS released proposed regulations under Section 956 (the Proposed Regulations), which substantially limit the application of Section 956’s “deemed dividend” rules to US corporations.1

This limitation on the application of Section 956 potentially increases the ability for US corporate borrowers to provide credit support in the form of guarantees by, and pledges of stock and assets of, their foreign subsidiaries/CFCs.

These rules not only impact new debt financings, but also outstanding credit facilities. The Proposed Regulations warrant a careful (re)examination of the tax and non-tax impacts of debt that is currently in place, because taxpayers are permitted to rely on the Proposed Regulations for tax years beginning on and after January 1, 2018.

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