Hybrid structures arise as a result of the different legal classification of financial instruments or entities in different countries. The aim of the regulations in Sec. 4k Income Tax Act is to avoid the profit-reducing recognition of expenses in multiple countries, or the classification of a payment as an expense in one country with simultaneous non-taxation of the income in another country.
The new regulation applies retroactively to expenses incurred after Dec. 31, 2019, so that an examination of the business expense deduction must already be carried out as part of the preparation of the tax returns for the fiscal year 2020.
You can obtain an initial overview of this business expense deduction restriction is given by our brief information.