January 2019 / United States

The US Treasury Department and the US Internal Revenue Service (IRS) have released proposed regulations (REG–104352–18) to provide guidance on hybrid dividends and certain amounts paid or accrued in hybrid transactions or with hybrid entities under sections 245A(e) and 267A of the US Internal Revenue Code (IRC). The proposed regulations were published in the Federal Register on 28 December 2018. IRC section 245A(e), enacted by the Tax Cuts and Jobs Act (TCJA), denies the dividends received deduction under IRC section 245A with respect to hybrid dividends. IRC section 245A, including IRC section 245A(e), applies to distributions made after 31 December 2017. IRC section 267A, also added to the IRC by the TJCA, denies certain interest or royalty deductions involving hybrid transactions or hybrid entities. IRC section 267A applies to taxable years beginning after 31 December 2017. The proposed regulations also contain rules under IRC sections 1503(d) and 7701 to prevent the same deduction from being claimed under the tax laws of both the United States and a foreign country. The proposed regulations affect taxpayers that would otherwise claim a deduction related to such amounts and certain shareholders of foreign corporations that pay or receive hybrid dividends.

On 28 December 2018, the US Treasury Department and the US Internal Revenue Service (IRS) published in the Federal Register the proposed regulations (REG-106089-18) that provide guidance on the limitation on the deduction for business interest expense under section 163(j) of the US Internal Revenue Code (IRC) as amended by the Tax Cuts and Jobs Act (TCJA). For a previous report on the proposed regulations. The proposed regulations are proposed to be effective generally for taxable years ending after the date the final regulations that adopt the proposed regulations are published in the Federal Register. Taxpayers, however, may rely on the rules in the proposed regulations until the final regulations are published.

On 15 January 2019, the US Treasury Department and the US Internal Revenue Service (IRS) issued the final regulations that provide guidance on the transition tax under section 965 of the US Internal Revenue Code (IRC). The transition tax is imposed on untaxed foreign earnings of foreign subsidiaries of US companies under IRC section 965, which treats those earnings as if they had been repatriated to the United States. Foreign earnings held in the form of cash and cash equivalents are taxed at a 15.5% rate. The remaining earnings are taxed at an 8% rate. The final regulations adopt, with certain revisions, the proposed regulations (REG-104226-18) that were published on 9 August 2018. The final regulations generally apply beginning the last taxable year of a foreign corporation that begins before 1 January 2018, and with respect to a United States person, beginning the taxable year in which or with which such taxable year of the foreign corporation ends (i.e. the applicability date of IRC section 965). The final regulations will be effective on the date that final regulations are published in the Federal Register.