Treasury has released proposed regulations (the Proposed Regulations) under the new dividends received deduction (DRD) and anti-hybrid rules (Sections 245A and 267A, respectively). Section 245A generally provides a 100% DRD for the foreign-source portion of dividends received by a US corporation from foreign corporations with respect to which it is a 10% US shareholder. Section 267A disallows deductions for certain related-party payments in connection with hybrid transactions or made by or to hybrid entities.
The 154-page Proposed Regulations, released December 20, are the first administrative guidance under both Section 245A and Section 267A, which were enacted by the 2017 tax reform act (the Act). The regulations also propose to modify the dual consolidated loss (DCL) rules under Section 1503(d) and the check-the-box rules under Section 7701. The effective dates for the Proposed Regulations are described below.
On January 15 PwC covered the Proposed Regulations on a Tax reform readiness webcast ‘Your new year's resolution - learn about the Sections 245A and 267A regulations.’
The Proposed Regulations -- the first regulatory guidance under Sections 245A and 267A -- clarify the mechanics of those provisions and expand the statutory rules in a number of respects.
Taxpayers should immediately assess the impact of the provisions in the Proposed Regulations, and consider commenting by the February 26 deadline on issues that Treasury should address before publishing final Section 245A, Section 267A, and DCL guidance.
Partner, Washington National Tax Services ITS Leader, PwC US