26 U.S.C. § 267A — Certain related party amounts paid or accrued in hybrid transactions or with hybrid entities

(a) In general. No deduction is allowed for a "disqualified related party amount" that is paid or accrued because of a hybrid transaction, or paid to or by a hybrid entity. (b) Disqualified related party amount. (1) This term means interest or a royalty paid or accrued to a related party, if either: (A) the related party's country doesn't include that amount in its taxable income, or treats it as tax-exempt there; or (B) the related party gets a deduction for that same amount under its own country's tax law. This does not include a payment already counted in a U.S. shareholder's income under section 951(a). (2) "Related party" has the meaning in section 954(d)(3), applied to the person making the payment instead of to the controlled foreign corporation that section normally refers to. (c) Hybrid transaction. This means any transaction, series of transactions, agreement, or instrument where a payment is treated as interest or a royalty for U.S. tax purposes, but is not treated that way under the tax law of the foreign country where the person receiving the payment is a tax resident or is subject to tax. (d) Hybrid entity. This means an entity that is either: (1) treated as "fiscally transparent" (its income passes through to owners) for U.S. tax purposes, but not for the tax purposes of the foreign country where it's a resident or subject to tax; or (2) treated as fiscally transparent under that foreign country's tax law, but not for U.S. tax purposes. (e) Regulations. The Secretary must issue regulations or other guidance to carry out this section, including rules for: (1) treating certain conduit arrangements involving a hybrid transaction or entity as covered by subsection (a); (2) applying this section to branches or domestic entities; (3) treating certain structured transactions as covered by subsection (a); (4) treating a tax preference as an income exclusion under subsection (b)(1) if it cuts the normal statutory tax rate by 25 percent or more; (5) treating the entire interest or royalty payment as a disqualified amount if it's subject to a participation-exemption system or similar system that excludes or deducts most of the amount; (6) determining a foreign entity's tax residence if it's otherwise considered a resident of more than one country, or of none; (7) exceptions to subsection (a) for cases where the amount is taxed in a foreign country other than the related party's home country, and other cases the Secretary decides don't risk eroding the U.S. tax base; and (8) recordkeeping and information-reporting requirements beyond what section 6038A already requires.