Structuring Intercompany Debt in C Corporations

Summary

This practice note discusses the U.S. federal income tax considerations for U.S. corporations taxed under subchapter C of the Internal Revenue Code (C corporation). The company must comply with certain tax and transfer pricing considerations when structuring intercompany debt transactions. This note discusses compliance with the U.S. transfer pricing rules, especially with respect to the arm's length standards of Treas. Reg. Section 1.482-2(a), the documentation requirements of the regulations under I.R.C. Section 385, and the characterization of your instrument as either debt or equity under case law, rulings, and I.R.C. Section 385. This practice note also reviews some background information on vital topics to understanding the tax rules facing intercompany debt transactions including, the taxation of C corporations, the definition of interest, the definition of debt and the definition of equity.