Tax rules on borrowing from subsidiaries eased

07/10/2008 - 9:04

(Reuters) - Regulators last week relaxed a rule allowing U.S. companies to borrow from their foreign subsidiaries, without triggering a 35 percent corporate income tax, in a move ease access to capital.

The change in the Internal Revenue Service rule, issued on Friday, effectively permits a U.S.-based parent company to borrow money for three 60-day periods a year, compared with the earlier rule, which allowed 30-day loans twice a year.

The agency said the move was in response to the recent financial market turmoil, which has made it hard for companies to source fresh capital.

"Recently, circumstances affecting liquidity have made it difficult for taxpayers to fund their operations," the agency said in a statement.

This rule was applicable only for the first two taxable years of a foreign corporation ending after October 3 this year, the statement said.

(Reporting by Savio D'Souza in Bangalore; Editing by Andrew Macdonald)