Treasury and the IRS Release Proposed and Final Regulations under Section 245A(e) and 267A

On April 7th, the Department of Treasury and the Internal Revenue Service released final and proposed regulations regarding hybrid arrangements under sections 245A(e) and 267A. Section 245A(e) generally limits the participation exemption deduction under section 245A or causes a dividend received by a controlled foreign corporation (CFC) to be included in subpart F income if a dividend from a CFC is a hybrid dividend, and section 267A generally eliminates deductions for any “disqualified related party amount” paid or accrued through a related hybrid entity or transaction. The final regulations finalize regulations that were initially proposed in December 2018, and the proposed regulations generally (i) adjust hybrid deduction accounts to take into account earnings and profits of a controlled foreign corporation that are included in income by a US shareholder; (ii) address arrangements involving equity interests that give rise to deductions under foreign law, for purposes of the conduit financing rules; and (iii) provide rules for reducing hybrid deduction accounts by reason of inclusions attributable to subpart F income, GILTI, and section 956.

Read the Final Regulations: TD 9896

Read the Proposed Regulations: REG-106013-19

 

Topic: International Tax