A proposed rule to apply an excise tax to certain types of stock repurchases made by foreign corporations with U.S. affiliates is overly broad in scope and has the potential to cover many ordinary transactions, the American Bankers Association said yesterday in a letter to the Treasury Department and IRS.
The Treasury Department earlier this year proposed a set of rules to implement provisions of the Inflation Reduction Act, which was passed by Congress in 2022 and, among its many changes, enacted a 1% excise tax on stock buybacks. In its letter, ABA raised concerns about the proposal’s general funding rule, which would apply the tax to the repurchase of stock of foreign corporations with U.S. affiliates under a number of circumstances.
ABA urged the agency to remove the general funding rule, as it could apply to any stock repurchase by a non-U.S. company with U.S. subsidiaries that are deemed at least partially funded by a U.S. entity. “ABA believes the absence of a funding rule in the statute is appropriate because, absent a direct purchase of parent company stock, a U.S. subsidiary cannot fund the purchase of parent company stock without either paying a dividend—which is subject to normal withholding tax rules or by funding the repurchase through a loan, which is subject to normal withholding tax rules or by funding the repurchase through a loan, which must be repaid,” the association said.
