Final Section 267A regulations: Additional analysis

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April 2020

Overview

Treasury and the IRS on April 7 released regulations that finalize 2018 Proposed Regulations addressing anti-hybrid rules under Sections 267A and 1503(d).  On the same date, Treasury and the IRS issued additional 2020 Proposed Regulations under Section 881 (with respect to the ‘anti-conduit regulations’).

The Final Regulations retain the architecture of the 2018 Proposed Regulations, but make a number of changes based on comments Treasury and the IRS had received.  While a number of these changes provide additional clarity or narrow the scope of the anti-hybrid rules in specific ways, other changes may widen their reach.  Accordingly, taxpayers will need to reevaluate the impact of the anti-hybrid rules in light of the Final Regulations.  In addition, the 2020 Proposed Section 881 Regulations, once finalized, will increase the circumstances in which anti-conduit rules may apply to cross-border financing structures.  

For more details regarding the Final Section 245A(e) Regulations and Proposed Section 951A Regulations, please see our companion Insight.

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The takeaway

The Final Regulations provide guidance related to the anti-hybrid provisions of Section 267A.  They retain the overall architecture of the 2018 Proposed Regulations but make a number of changes that either clarify, expand, or narrow the reach of the 2018 Proposed Regulations and, thus, may impact how taxpayers are affected by these rules.  In addition, the new 2020 Proposed Section 881 Regulations, if finalized as proposed, will expand the reach of the anti-conduit regulations to impact financing arrangements that currently may not be in the scope of the current rules.

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Doug McHoney

International Tax Services Leader, PwC US

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