Treasury Provides ‘Critical Relief’ to US Employers
WASHINGTON – Nancy McLernon, president and CEO of the Organization for International Investment (OFII), issued the following statement in response to the U.S. Department of Treasury’s announcement it is delaying the application of “the Documentation Regulations by 12 months” for the Section 385 regulations.
“Today’s action by Secretary Mnuchin provides critical relief for American manufacturers and employers. This common-sense decision ensures that funds which could be used for expansion and job creation are not diverted to complying with a discriminatory regulation that Treasury may ultimately rescind. While the Obama Administration cloaked the Section 385 regulations in the politics of so-called ‘inversions,’ the reality is that these rules hit routine business transactions that have nothing to do with ‘inversion’ activity. These regulations are already making the United States less attractive in a highly competitive global economy. I want to thank the Administration for today’s action and urge Secretary Mnuchin to rescind these regulations at the earliest opportunity.”
OFII joined a broad coalition of business associations in urging the Treasury Department to postpone the implementation date of the Sec. 385 regulations so that employers do not have to undertake costly compliance measures while the Department considers its repeal.
BACKGROUND ON THE SECTION 385 REGULATIONS
- When it released the Sec. 385 regulations in April 2016, the Treasury Department provided businesses and the public with just 90 days to review and offer comments on the 400+ page regulation, which provides the IRS with the ability to unilaterally reclassify business debt as equity. During this period, Treasury received more than 30,000 comments, including several from congressional leaders.
- Undeterred, the Treasury Department issued its final Sec. 385 regulations on October 21, 2016.
- In the final text, Treasury admitted that the new regulations would make the United States less competitive for global investment: “[T]he regulations may slightly increase the effective tax rate and compliance costs on U.S. inbound investment…. [T]he regulations do to some extent make the U.S. a less attractive location for foreign investment…”
IMPORTANCE OF FOREIGN DIRECT INVESTMENT (FDI) IN THE UNITED STATES:
- High-Quality Jobs: Approximately 6.4 million Americans are directly employed by foreign-based firms with operations in the United States (e.g. Airbus, Michelin, Samsung, Siemens). That includes 2.4 million U.S. manufacturing workers – representing one-in-five of all U.S. manufacturing jobs.
- Good Pay: These FDI-supported jobs offer wages and benefits that are 30 percent higher than the economy-wide average.
- Exports: U.S. workers at these global companies produce 26 percent of all U.S. exports.