January 2 2019
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.