U.S. Proposed Regulations Target Hybrid Structures And Instruments Retroactively

The United States was initially reluctant to adopt the recommendations of the base erosion and profit shifting (BEPS) initiative spearheaded by the OECD and the G20 group of nations. However, the major tax reform legislation known as the Tax Cuts and Jobs Act includes several provisions dealing with the concerns that the BEPS recommendations are intended to address, a number of which we have covered in prior publications.¹ The Internal Revenue Service (IRS) and Treasury Department released sweeping proposed regulations (the Proposed Anti-Hybrid Regulations) under two of these new provisions on December 20, 2018 – namely, (i) section 267A,² which specifically targets "hybrid mismatches" in which a taxpayer and related parties could either create deductions in both the United States and one or more other jurisdictions or create deductions in the United States without an offsetting income inclusion in another country; and (ii) section 245A(e), which denies to