Finance is contemplating relief for where upstream loans no longer are synthetic distributions
The general policy intent of the upstream loan rules is to ensure that a synthetic distribution by way of an upstream loan from a foreign affiliate should produce comparable tax results to an actual distribution. Accordingly, Finance is thinking about devising expanded relieving rules to provide a deemed repayment of an upstream loan upon the occurrence of specified triggering events which effectively eliminate the equivalent of a synthetic distribution. An obvious “poster child” triggering event is a cash sale by Canco of a foreign affiliate that had made a (still-outstanding) upstream loan to it. However, Finance would prefer not to introduce relieving triggering events on a piecemeal basis and, instead, would prefer to do a complete analysis of to what extent relief should extend to more complex situations.
In the meantime, taxpayers have available work-arounds to use in situations such as the poster child rather than requesting ad hoc relief. In this regard, Finance referred approvingly to 2013-0491061R3, which it described as a temporary repayment of a loan, in the course of transactions in which the creditor foreign affiliate ceases to be an FA of the taxpayer, being treated as a permanent repayment and not part of a series of loans and repayments.