Hybrid Mismatch Arrangements

Hybrid mistmatch arrangements are one of the main base erosion and profit shifting (BEPS) strategies used by some large international companies to pay little or no tax anywhere in the world. The OECD developed recommendations for anti-hybrid measures in its 15 point Base Erosion and Profit Shifting (BEPS) Action Plan. This Government discussion document seeks comments on how the OECD recommendations could be implemented in New Zealand. Part I of the document describes the problem of hybrid mismatch arrangements, the case for responding to the problem, and a summary of the OECD recommendations. Part II of the document explains the OECD recommendations in greater depth and discusses how they could be incorporated into New Zealand law.

This report sets out recommendations for domestic rules to neutralise the effect of hybrid mismatch arrangements and includes changes to the OECD Model Tax Convention to address such arrangements. Once translated into domestic law, the recommendations in Part 1 of the report will neutralise the effect of cross-border hybrid mismatch arrangements that produce multiple deductions for a single expense or a deduction in one jurisdiction with no corresponding taxation in the other jurisdiction. Part 1 of the report will be supplemented by a commentary, which will explain the recommended rules and illustrate their application with practical examples. Part 2 of the report sets out proposed changes to the Model Convention that will ensure the benefits of tax treaties are only granted to hybrid entities (including dual resident entities) in appropriate cases. Part 2 also considers the interaction between the OECD Model Convention and the domestic law recommendations in Part 1.

This report sets out recommendations for domestic rules to neutralise the effect of hybrid mismatch arrangements and includes changes to the OECD Model Tax Convention to address such arrangements. Once translated into domestic law, the recommendations in Part 1 of the report will neutralise the effect of cross-border hybrid mismatch arrangements that produce multiple deductions for a single expense or a deduction in one jurisdiction with no corresponding taxation in the other jurisdiction. Part I of the report sets out recommendations for rules to address hybrid mismatches in respect of payments made under a hybrid financial instrument or payments made to or by a hybrid entity. It also recommends rules to address indirect mismatches that arise when the effects of a hybrid mismatch arrangement are imported into a third jurisdiction. The recommendations are supported by a commentary and examples to illustrate how they should apply. Part 2 of the report sets out proposed changes to the Model Convention that will ensure the benefits of tax treaties are only granted to hybrid entities (including dual resident entities) in appropriate cases. Part 2 also considers the interaction between the OECD Model Convention and the domestic law recommendations in Part 1.

An analysis of the tax treatment of financial instruments in EU Member States, and the disclosure of actual political responses to aggressive tax planning by the OECD and the European Union. In recent months, a fierce discussion on Base Erosion and Profit Shifting (BEPS), in particular concerning the use of hybrid financial instruments, has been rumbling. In addition to the OECD Report released under Action 2, the European Commission has also made its contribution to the fight against "international tax arbitrage" by issuing Directive (2014/86/EU) amending the Parent-Subsidiary Directive. The authors investigate various tax classification criteria of financial instruments in each EU Member State, and indicate the causes of qualification conflicts leading to unintended double non-taxation. The article provides a detailed examination of the operation of the proposed "linking rules" at the OECD and EU level. In this context, the authors address the question whether the solutions published by the OECD and the EU are an effective tool in the prevention of qualification conflicts, and whether, in the absence of a tie-breaker rule, the interrelation of these approaches may lead to double taxation. Further, it will be examined whether the newly introduced standards are able to ensure international coherence in corporate income taxation.Full-text Paper.

This report deals with hybrid mismatch arrangements. These are arrangements exploiting differences in the tax treatment of instruments, entities or transfers between two or more countries. Hybrid mismatch arrangements have been encountered by tax administrations in many countries. They often lead to "double non-taxation" that may not be intended by either country, or may alternatively lead to a tax deferral which if maintained over several years is economically similar to double non-taxation.

Addressing base erosion and profit shifting (BEPS) is a key priority of governments. In 2013, OECD and G20 countries, working together on an equal footing, adopted a 15-point Action Plan to address BEPS. This publication is the final report for Action 2.

This note describes recent measures to counter hybrid mismatch arrangements at the EU level. After summarizing the OECD's work regarding hybrid mismatch arrangements, the note discusses the provision on hybrid mismatch arrangements in ATAD 1, as well as the operative rules in ATAD 2, including examples of their application.

This response has been prepared by Erika Barros Sierra, Jeffery Kadet, Francis Weyzig, Tomas Balco and Sol Picciotto , with comments from other members of the Group. They welcome the opportunity to comment on the Consultation Document on BEPS Action Plan point 2, Neutralise the Effects of Hybrid Mismatch Arrangements, and the Related Note on Tax Treaty Aspects of Hybrid Mismatches, published by the OECD on 19th March 2014. This report begins with some general comments, and then addresses some (but not all) of the specific questions posed in the Discussion Drafts.

The OECD base erosion and profit shifting (BEPS) 15-point Action Plan contains two action points addressing aspects of financing in the broadest sense. Action 2 is intended to neutralize the effects of hybrid mismatch arrangements, and Action 4 seeks to limit base erosion involving interest deductions and other financial payments. These action points essentially concern issues regarding the allocation of taxation associated with internal group financing arrangements. However, they also address structured financing. This article examines both action points.