Big-Name Companies Want to Pull Back the Reins on Debt-Equity Regs
Big-Name Companies Want to Pull Back the Reins on Debt-Equity Regs
- AuthorsNorwitt, R. AdamDickerson, Gary E.Bass, CarlFerland, E. JamesVerrier, JamesEdwards, JeffreyLawrie, MikeLinebarger, N. ThomasBaker, Douglas M., Jr.Mussallem, Michael A.Lechleiter, John C.Seaton, David T.Peck, ArtWhitman, MegRankin, Alfred M., Jr.Mondello, Mark T.Gorsky, AlexFalk, Thomas J.Wexner, Leslie H.Simoncini, Matthew J.Glassman, Karl G.Bergh, ChipClarke, Troy A.Chambers, Norman C.Kurian, GeorgeJackson, Keith D.Lopez, Andres A.Moret, BlakeSola, JureEbel, Gregory L.Peterson, Douglas L.Kent, MuhtarLiveris, Andrew N.Taylor, David S.Goings, E.V.Wiseman, Eric C.
- Institutional AuthorsAmphenol Corp.Applied Materials Inc.AutodeskBabcock and Wilcox Enterprises Inc.BorgWarner Inc.Cooper-Standard Holdings Inc.CSCCummins Inc.EcolabEdwards Lifesciences Corp.Eli Lilly and Co.Fluor Corp.Gap Inc.Hewlett Packard EnterpriseHyster-Yale Materials Handling Inc.Jabil Circuit Inc.Johnson & JohnsonKimberly-Clark Corp.L Brands Inc.Lear Corp.Leggett & Platt Inc.Levi Strauss & Co.Navistar International Corp.NCI Building Systems Inc.NetApp Inc.ON SemiconductorOwens-Illinois Inc.Rockwell AutomationSanmina Corp.Spectra Energy Corp.S&P GlobalThe Coca-Cola Co.The Dow Chemical Co.The Procter & Gamble Co.Tupperware Brands Corp.V.F. Corp.Xerox Corp.
- Cross-Reference
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2016-14504
- Tax Analysts Electronic Citation2016 TNT 135-17
July 13, 2016
President Barack Obama
The White House
1600 Pennsylvania Ave., NW
Washington, DC 20500
Secretary Jack Lew
U.S. Department of the Treasury
1500 Pennsylvania Ave., NW
Washington, DC 20220
Dear President Obama and Secretary Lew:
We are writing to express our deep concern with proposed debt-equity regulations issued under Internal Revenue Code section 385 by the Treasury Department on April 4, 2016 ("385 regulations" or "proposed regulations"). The destructive impact that these proposed regulations are already inflicting on the ability of U.S. businesses to invest, to create jobs, and to simply manage our day-to-day operations cannot be overstated nor truly quantified.
While the goals stated in the Department of Treasury's April 4, 2016 press release were "to rein in inversions and reduce the ability of companies to avoid taxes by earnings stripping," the impact of the 385 regulations on U.S.-based businesses goes far beyond inversions or earnings stripping and severely harms the ability of companies to manage their day-to-day operations. To be clear, we do not oppose measures to curtail clearly abusive transactions designed to strip the U.S. tax base with intercompany debt; however we are deeply concerned with the breadth of the proposed regulations and the vast complexity and uncertainty that will result for U.S. businesses.
By reclassifying certain debt as equity, the proposed changes to Sec. 385 (i) disrupt ordinary business transactions of U.S.-based companies having nothing to do with tax, (ii) require radical restructuring of routine cash management functions, (iii) impose costs and burdens even steeper than those offered through third-party financing, and (iv) create tremendous uncertainty, downward pressure on U.S.-based company credit ratings (due to the push to third-party debt), and financial statement exposure. These problems are further complicated by new look-back and look-ahead reporting requirements and a retroactive effective date that has already had a detrimental effect on business practices.
The new regulations apply even where it can be indisputably demonstrated that the debt is arm's-length debt or where there is no possibility of earnings stripping out of the United States such as when dividends are paid to the United States from foreign subsidiaries. In this regard, the regulations are counterproductive, complicating or rendering impossible many companies' ability to manage cash to issue taxable dividends to shareholders.
Our impression is that Treasury has not given sufficient attention to these and other concerns, and we believe the regulations will further reduce the competitive position of U.S. businesses. In today's ultra-competitive global business environment, U.S. businesses already operate under the most burdensome tax system with the highest tax rate in the industrialized world. Redefining related-party debt as equity and overturning, via regulatory process, decades of well-established law and practice will serve only to weaken U.S. businesses and make them more susceptible to foreign takeovers.
The breadth of these regulations coupled with the stringent deadline for comments and Treasury's plans to finalize the rules quickly is unreasonable. Implementing such dramatic changes to the manner in which America's companies manage their financial resources without adequate time or consideration is simply dangerous to the U.S. economy. For example, forcing companies to eliminate legitimate cash pool operations and arm's-length intercompany lending would put billions, if not trillions of dollars at risk in private, and often risky, banks around the globe.
We respectfully request that Treasury limit the 385 regulations to their stated purpose of reining in inversions and protecting the U.S. tax base by either: (1) withdrawing the regulations until such time as they can be carefully reconsidered and sufficiently narrowed so that they do not unnecessarily hamper and disrupt U.S. business operations and put the millions of workers they employ at risk or (2) exempting foreign-to-foreign subsidiary lending from the regulations as such lending has nothing to do with either inversions or the erosion of the U.S. tax base, and also addressing the negative impacts on other ordinary business transactions.
R. Adam Norwitt
President and Chief Executive Officer
Amphenol Corporation
Wallingford, Connecticut
Gary E. Dickerson
President and Chief Executive Officer
Applied Materials, Inc.
Santa Clara, California
Carl Bass
President and Chief Executive Officer
Autodesk
San Rafael, California
E. James Ferland
Chairman and Chief Executive Officer
Babcock and Wilcox Enterprises, Inc.
Charlotte, North Carolina
James Verrier
President & Chief Executive Officer
BorgWarner Inc.
Auburn Hills, Michigan
Jeffrey Edwards
Chairman and CEO
Cooper-Standard Holdings, Inc.
Novi, Michigan
Mike Lawrie
Chairman, President & Chief
Executive Officer CSC
Tysons, Virginia
N. Thomas Linebarger
Chairman and Chief Executive Officer
Cummins Inc.
Columbus, Indiana
Douglas M. Baker, Jr.
Chairman and CEO
Ecolab
St. Paul, Minnesota
Michael A. Mussallem
Chairman & Chief Executive Officer
Edwards Lifesciences Corporation
Irvine, California
John C. Lechleiter, Ph.D.
Chairman, President, and Chief
Executive Officer
Eli Lilly and Company
Indianapolis, Indiana
David T. Seaton
Chairman and Chief Executive Officer
Fluor Corporation
Irving, Texas
Art Peck
Chief Executive Officer
Gap Inc.
San Francisco, California
Meg Whitman
President & CEO
Hewlett Packard Enterprise
Palo Alto, California
Alfred M. Rankin, Jr.
Chairman, President and Chief
Executive Officer
Hyster-Yale Materials Handling, Inc.
Cleveland, Ohio
Mark T. Mondello
Chief Executive Officer
Jabil Circuit, Inc.
St. Petersburg, Florida
Alex Gorsky
Chairman and CEO
Johnson & Johnson
New Brunswick, New Jersey
Thomas J. Falk
Chairman and Chief Executive Officer
Kimberly-Clark Corporation
Irving, Texas
Leslie H. Wexner
Chairman and CEO
L Brands, Inc.
Columbus, Ohio
Matthew J. Simoncini
President and Chief Executive Officer
Lear Corporation
Southfield, Michigan
Karl G. Glassman
President and Chief Executive Officer
Leggett & Platt, Incorporated
Carthage, Missouri
Chip Bergh
President and CEO
Levi Strauss & Co.
San Francisco, California
Troy A. Clarke
President and CEO
Navistar International Corporation
Lisle, Illinois
Norman C. Chambers
Chairman & CEO
NCI Building Systems, Inc.
Houston, Texas
George Kurian
Chief Executive Officer and
President
NetApp, Inc.
Sunnyvale, California
Keith D. Jackson
President and Chief Executive Officer
ON Semiconductor
Phoenix, Arizona
Andres A. Lopez
President and Chief Executive Officer
Owens-Illinois, Inc.
Perrysburg, Ohio
Blake Moret
President and Chief Executive Officer
Rockwell Automation
Milwaukee, Wisconsin
Jure Sola
Chairman and Chief Executive Officer
Sanmina Corporation
San Jose, California
Gregory L. Ebel
Chairman, President and CEO
Spectra Energy Corp
Houston, Texas
Douglas L. Peterson
CEO & President
S&P Global
New York City, New York
Muhtar Kent
Chairman of the Board and Chief
Executive Officer
The Coca-Cola Company
Atlanta, Georgia
Andrew N. Liveris
Chairman and CEO
The Dow Chemical Company
Midland, Michigan
David S. Taylor
Chairman of the Board, President
and Chief Executive Officer
The Procter & Gamble Company
Cincinnati, Ohio
E.V. Goings
Chairman & Chief Executive Officer
Tupperware Brands Corporation
Orlando, Florida
Eric C. Wiseman
Chairman & CEO
V.F. Corporation
Greensboro, North Carolina
Ursula M. Burns
Chairman and Chief Executive Officer
Xerox Corporation
Norwalk, Connecticut
- AuthorsNorwitt, R. AdamDickerson, Gary E.Bass, CarlFerland, E. JamesVerrier, JamesEdwards, JeffreyLawrie, MikeLinebarger, N. ThomasBaker, Douglas M., Jr.Mussallem, Michael A.Lechleiter, John C.Seaton, David T.Peck, ArtWhitman, MegRankin, Alfred M., Jr.Mondello, Mark T.Gorsky, AlexFalk, Thomas J.Wexner, Leslie H.Simoncini, Matthew J.Glassman, Karl G.Bergh, ChipClarke, Troy A.Chambers, Norman C.Kurian, GeorgeJackson, Keith D.Lopez, Andres A.Moret, BlakeSola, JureEbel, Gregory L.Peterson, Douglas L.Kent, MuhtarLiveris, Andrew N.Taylor, David S.Goings, E.V.Wiseman, Eric C.
- Institutional AuthorsAmphenol Corp.Applied Materials Inc.AutodeskBabcock and Wilcox Enterprises Inc.BorgWarner Inc.Cooper-Standard Holdings Inc.CSCCummins Inc.EcolabEdwards Lifesciences Corp.Eli Lilly and Co.Fluor Corp.Gap Inc.Hewlett Packard EnterpriseHyster-Yale Materials Handling Inc.Jabil Circuit Inc.Johnson & JohnsonKimberly-Clark Corp.L Brands Inc.Lear Corp.Leggett & Platt Inc.Levi Strauss & Co.Navistar International Corp.NCI Building Systems Inc.NetApp Inc.ON SemiconductorOwens-Illinois Inc.Rockwell AutomationSanmina Corp.Spectra Energy Corp.S&P GlobalThe Coca-Cola Co.The Dow Chemical Co.The Procter & Gamble Co.Tupperware Brands Corp.V.F. Corp.Xerox Corp.
- Cross-Reference
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2016-14504
- Tax Analysts Electronic Citation2016 TNT 135-17