The US IRS today published final (T.D. 9896) and proposed (REG-106013-19) regulations on hybrid arrangements. Hybrid arrangements are transactions or entities that are classified differently under US and foreign law for tax purposes and thus can create opportunities for tax avoidance by multinational groups. These arrangements were addressed in the 2017 Tax Cuts and Jobs Act.
The final regulations rules cover hybrid dividends and amounts paid or accrued pursuant to hybrid arrangements. They also address dual consolidated losses and entity classifications to prevent the same deduction from being claimed under the tax laws of both the United States and a foreign jurisdiction. Finally, the regs address information reporting to facilitate the administration of certain rules in the final regulations.
According to the IRS, the final regulations retain the basic approach and structure of proposed regulations (REG-104352-18) issued on December 28, 2018, with some revisions.
The proposed regulations released today adjust hybrid deduction accounts to reflect the earnings and profits of a controlled foreign corporation that are included in income by a US shareholder.
The proposed regulations also address, for purposes of the conduit financing rules, arrangements involving equity interests that give rise to deductions (or similar benefits) under foreign law.
Finally, the proposed regulations address the allocation of deductions attributable to certain disqualified payments under the global intangible low tax income (GILTI) rules.
MNE Tax expects to publish an in-depth report on the final and proposed hybrid regulations shortly.
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