Many treasurers are breathing a collective sigh of relief with the news that the Treasury Department is working to carve out cash pooling arrangements from its proposed changes to section 385 of the Internal Revenue Code. However, a Treasury Department official warned that any carve-out would be for daily cash positions and not long-term arrangements, Bloomberg reported.

On a BDO USA LLP podcast, Deputy Associate International Tax Counsel Douglas Poms said that Treasury has heard the complaints from U.S. businesses on the proposed rules, particularly about their effects on cash pooling. He noted that Treasury wants there to be “some kind of exception” for shorter-term arrangements for moving cash.

Corporate treasury professionals largely agree that the Treasury Department didn’t fully understand the ramifications its new rules could have on routine business operations. “I don’t think that [Treasury] has been advised properly about how money actually moves around the globe, the onshore offshore issues, and how these structures are actually part of working capital and are not tax evasion,” said an assistant treasurer for a major logistics provider.
However, Pom cautioned that Treasury wants to “make sure it can’t be a mechanism for disguising what are longer-term funding arrangements.” If cash moves in a single direction for extended periods of time, then that could be a problem. “We don’t want to allow cash pooling to be used as a way to do intercompany lending and get around these rules,” he said.


Still, any carve-out for cash pooling would be music to the ears of treasurers. The subject came up during the last meeting of AFP’s Treasury Advisory Group, and members brainstormed what a cash pooling carve-out might look like. One treasurer noted that the language of any carve-out would be particularly important, as Treasury doesn’t want to create a giant loophole that allows companies to skirt around the regulations. “They could start saying, ‘that’s part of my cash pool, that’s part of my cash pool,’” he said.

But treasury professionals should keep their optimism in check. Robert Stack, Treasury’s deputy assistant secretary for international tax affairs, recently acknowledged that the rules may go too far—but warned that might not matter. While Stack himself views the rules as a “blunt instrument”, he advised businesses that “the final decisions will all be made above my pay grade.”

AFP has been adamant that the rules, as they are currently written, would severely increase the cost of doing business for many companies and disrupt a common practice for multinational corporations. AFP voiced these concerns in a comment letter last month.

A carve-out for cash pooling would quell many of treasurers’ concerns. But if that doesn’t happen, the consequences could be dire, noted Tom Hunt, CTP, director of treasury services. “If we don’t get this exception, it will spell disaster for treasury departments and not just in the U.S.,” he said.