Section 267A New Final Anti-Hybrid Regulations

Section 267A combats deduction/no inclusion outcomes (D/NI) related to hybrid transactions and entities intentionally implemented to take advantage of jurisdictional tax differences. The now-final regulations disallow interest and royalty deductions for disqualified hybrid amounts, disqualified imported mismatch amounts, and payments subject to the anti-avoidance rule. Being able to determine whether an arrangement meets these definitions is critical, and not readily apparent, for tax practitioners working with companies transacting internationally.

The rules in Section 267A generally followed OECD's recommendations in its 2015 Base Erosion and Profit Sharing report; however, there are some significant differences. The OECD, for example, does not disallow deductions for imputed interest on interest-free loans.

In addition to the final regulations, proposed regulations issued in April 2020 address hybrid transactions and allocating payments for disqualified deductions under the GILTI provisions. These regulations involve (1) adjustments to hybrid deduction accounts that consider a CFC's earnings and profits included in the income of a U.S. shareholder, (2) requirements for specific anti-conduit rules under Section 881, and (3) updated regulations concerning the deduction allocations related to gap period prepayments in the computation of tested income under GILTI provisions.

Listen as our panel of foreign tax experts explains how to determine which transactions meet the criteria of 267A, the interplay of 267A with OECD's recommendations, and the impact of the final and proposed regulations on hybrid entities and transactions.

1. Background
2. Interplay with OECD
3. Final regulations
4. Proposed regulations

The panel will review these and other critical issues:

• Determining what constitutes a foreign deduction or additional tax benefit under the final regulations
• Maintaining hybrid deduction accounts under 245A(e)
• Identifying foreign hybrid mismatch payments
• Variations between the proposed and final regulations
• How the 267A regulations correspond with OECD and the BEPS report

Learning Objectives

After completing this course, you will be able to:

• Identify payments subject to the anti-avoidance rules
• Determine when a payment is a disqualified hybrid amount under 267A
• Decide what constitutes a foreign tax benefit
• Ascertain differences between the proposed and final regulations

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and sole proprietorships, qualified business income, net operating losses and loss limitations; familiarity with net operating loss carry-backs, carry-forwards and carried interests.

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IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).