The Internal Revenue Service (IRS) and Treasury Department released sweeping proposed regulations on December 20, 2018 implementing two provisions under the Tax Cuts and Jobs Act – namely, (i) section 267A, 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 “hybrid dividends” the tax exemption available to certain foreign source dividends.

The new rules, which are expected to be finalized before the end of June 2019, will adversely affect the U.S. tax treatment of certain cross-border arrangements previously used by Canadian multinationals to finance acquisitions and operations. Due to their broad reach and inherent complexity, the new rules are bound to be controversial and might be pared back in the face of what is expected to be widespread criticism.

Read our summary of key elements of the proposed regulations.