§267A Certain Related Party Amounts Paid or Accrued in Hybrid Transactions or with Hybrid Entities

Summary

Stops businesses from taking a tax deduction for interest or royalty payments when those payments are part of a “hybrid” deal or involve a “hybrid” company and the payments are to a related party. If the payment is not taxed where the receiver lives, or the receiver gets a tax break for it, the payer cannot deduct that amount on its U.S. tax return. Key words: disqualified related party amount — interest or royalty paid to a related party that isn’t taxed where the recipient lives or that the recipient can deduct; related party — a person related under the rules in section 954(d)(3) applied to the payer; hybrid transaction — a payment treated as interest or royalty in the U.S. but not so treated where the recipient is taxed; hybrid entity — an entity treated as transparent in one country but not in the other. The Treasury must write rules covering conduit and structured deals, branches and domestic entities, when a tax preference cuts the rate by 25 percent or more, when whole payments are excluded under participation-exemption systems, how to decide foreign tax residence, certain exceptions, and extra record‑keeping and reporting beyond section 6038A.