§267A Certain related party amounts paid or accrued in hybrid transactions or with hybrid entities

Summary

Stops a taxpayer from claiming a tax deduction for interest or royalty payments to a related party when the payment is part of a hybrid transaction or involves a hybrid entity. A "disqualified related party amount" is any interest or royalty paid to a related party that is not taxed where that party lives or that the related party can also deduct under its own tax law. "Related party" means a related person as defined in section 954(d)(3), applied to the payer. A "hybrid transaction" is one treated as interest or royalty in the United States but not so treated where the recipient is taxed. A "hybrid entity" is an entity treated as a pass‑through (fiscally transparent) for U.S. tax but not abroad, or vice versa. The Treasury Secretary must write rules and guidance to make the rule work. Those rules will cover conduit arrangements, branches and domestic entities, structured deals, and how to treat tax preferences that cut the normal tax rate by 25 percent or more. The rules can treat whole payments as disqualified when participation‑exemption or similar systems exclude or deduct a large part, decide a foreign entity’s tax residence if it has more than one or none, allow narrow exceptions when amounts are taxed in another foreign country or pose little risk to the U.S. tax base, and add recordkeeping and reporting beyond section 6038A.