Hybrid mismatch arrangements are the focus of the 2-part Action Plan 2 of the Organisation for Economic Co-operation and Development’s (OECD’s) Base Erosion and Profit Shifting (BEPS) initiative. Hybrid Mismatch Arrangements abuse differences in the tax treatment of an instrument (i.e., a hybrid instrument) or an entity (i.e., a hybrid entity) by separate jurisdictions to reduce or eliminate taxes. Action Plan 2 contains recommendations for changes (i) to domestic tax rules of taxing jurisdictions, and (ii) to the OECD Model Tax Convention, to neutralize the effects of hybrid mismatch arrangements. Part I of Action Plan 2 provides guidance on how countries should implement and apply the recommended rules, and emphasizes that the rules were designed to neutralize mismatches and not simply to minimize tax benefits. The rules should be comprehensive, apply automatically and consistently, avoid double taxation via rule coordination, and minimize disruptions to existing laws. In addition, they should be clear and transparent in their application; provide for flexibility as these are incorporated into each jurisdiction; be workable for taxpayers and entail minimum compliance costs; and minimize administrative burdens on tax authorities.
Dec 272015