But Holding Period and Other Requirements Add Complexity -

On October 31, 2018, the US Treasury and Internal Revenue Service issued proposed regulations (the Proposed Regulations) that would eliminate, in most circumstances, the deemed dividend or repatriation tax resulting from the provision by foreign affiliates of guarantee and collateral support to borrowings by US corporations. The Proposed Regulations are intended to conform the rules governing foreign credit support of US borrowings with the “territorial” dividend exemption regime created in December 2017 by the Tax Cuts and Jobs Act (the Act).1 Accordingly, the relief provided by the Proposed Regulations is limited to US corporate shareholders of foreign affiliates. Additionally, the relief is subject to limitations similar to those imposed on US corporations in order to receive foreign cash dividends free of US tax. Although the Proposed Regulations are not yet effective, a taxpayer may, subject to a consistency requirement, rely on them immediately for taxable years beginning after December 31, 2017.