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OFII Praises Administration's Efforts to Address Sec. 385 Regs

WASHINGTON – Nancy McLernon, president and CEO of the Organization for International Investment (OFII), issued the following statement in response to President Trump signing an executive order directing the Treasury Department to review recently issued tax regulations, such as those issued under Section 385: 
 

“In the waning days of the previous administration, the Treasury Department imposed sweeping, costly and burdensome regulations that even it admitted would ‘increase the effective tax rate and compliance costs on U.S. inbound investment’ and ‘make the U.S. a less attractive location for foreign investment.’ On behalf of the millions of Americans whose jobs depend on global investment – including many in the manufacturing sector – I want to thank President Trump and Secretary Mnuchin for taking today’s action and urge them to rescind these Section 385 regulations that are already making America less competitive.”
 

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.
 

BACKGROUND ON THE SECTION 385 REGULATIONS

-  When it released the Sec. 385 regulations last April, 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…”

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