CEO group urges Congress to act on proposed tax rules

A top business group is urging congressional action on proposed Treasury Department rules that would recharacterize some debt as equity.

“The proposed regulations overturn decades of case law, regulatory guidance, and fundamental tax principles,” the Business Roundtable said in a letter Thursday to the top Republicans and Democrats on the congressional tax-writing committees. “The changes being proposed are extensive and dramatic. Moreover, they have an immediate effect.”  

The letter was signed by Mark Weinberger, chairman of the Roundtable’s tax and fiscal policy committee. The group represents chief executive officers of leading companies.

It wants Congress to require the Treasury to extend the comment period by 90 days, change the effective date and provide a thorough economic analysis of the proposed rule. Earlier this month, the Roundtable and other business groups sent a letter to Treasury Secretary Jack Lew urging the department to take these actions.

The Treasury issued the proposed rule on April 4 in an effort to curb one of the main tax benefits of “corporate inversions,” transactions in which U.S. companies reincorporate overseas to lower their taxes. The guidance would be effective for debt issued on or after April 4.

But the Roundtable said the proposed rule would actually apply to many business transactions that are routine in both the domestic and international context.

“The expansive impact of these proposed regulations on routine transactions is giving rise to profound concerns within the business community,” the group said. “These new rules impact compliance with tax rules related to reorganizations, spin-offs, consolidated returns, the use of foreign tax credits, legal entity classification, eligibility of withholding tax exemptions, and various other operations and transactions.”

The Office of Management and Budget prepared a two-page analysis of the proposed rule. The report includes Treasury estimates that the economy-wide paperwork burden would be $15 million annually and that the rule would lead to a tax increase of about $10 billion over a decade. 

However, the Roundtable said the paperwork burden estimate is much too low and the revenue estimate may also be significantly understated.

“Given the significant effects of these rules, a complete and thorough analysis of the potential business and economic consequences of the proposed regulations should be conducted by Treasury prior to the conclusion of the comment period,” it said.