Many Business Leaders Believe Proposed Debt-Equity Rules Would Impact Companies More Than BEPS, Says KPMG Survey

Survey Highlights Impact Of Proposed Sec 385 Rules

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In a recent poll conducted by KPMG LLP, almost one-third of respondents (31 percent) said they believed the proposed debt-equity regulations, under Section 385 of the U.S. tax code, would have a greater impact on their company than the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting (BEPS) project.


“Companies clearly recognize the major challenges that may lie ahead under the proposed rules, which represent the most profound regulatory change to the U.S. income tax system in the last 20 years,” said Joseph Pari, national principal-in-charge of the Washington National Tax practice of KPMG LLP. “Taxpayers need to be preparing now for the potential for the new rules to take effect, with significant impact expected possibly as early as a matter of months from now.”


In the survey of some 1,100 business leaders by the U.S. audit, tax and advisory firm, 31 percent said that, if enacted, the proposed regulations – issued by the Internal Revenue Service and the U.S. Department of the Treasury in April – would have more impact on their organizations than BEPS, while 22 percent said they thought the rules would have the same impact and 31 percent were not sure.


When asked to identify the top impact the rules might have on their business operations, if finalized in current form, 25 percent of respondents cited a need for new tax planning, while 15 percent said the rules would require additional resources and another 15 percent said there would be a reduced use of debt. Thirty-four percent said they weren’t sure.


The survey also provided a mixed response on the timing for finalization of the proposed regulations, with 28 percent saying before the Presidential election or sooner, another 28 percent saying after the election, and 44 percent saying they weren’t sure. Pari noted that government officials have repeatedly stated their intention to finalize rules before the end of 2016.


The proposed rules would fundamentally alter the U.S. tax treatment of intercompany financing within U.S. and non-U.S. parented multinational groups. If enacted in current form, the rules will significantly affect financing and M&A activity as well, and force companies to reconsider aspects of their internal financing, cash management and tax planning.


The survey was conducted during a KPMG Tax Governance Institute webcast on May 24 on the proposed Section 385 rules. Among survey participants were tax directors, vice presidents of tax, chief tax officers, chief financial officers, controllers, treasurers, audit committee members and chairs, and board members and chairs. A replay to the webcast can be accessed here.


KPMG LLP, the audit, tax and advisory firm (, is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 174,000 professionals, including more than 9,000 partners, in 155 countries.


Robert Nihen/Ann Marie Gorden
Twitter: @rgnihen/@AnnMarie_Tax

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