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Ireland Issues Guidance On New Anti-Hybrid Mismatch Rules

by Jason Gorringe,, London

25 July 2019

The Irish Government has released additional guidance on its proposals for new anti-hybrid rules, responding to feedback to a consultation launched in November 2018.

Under the EU's Anti-Tax Avoidance Directives (ATADs), EU member states are required to introduce rules to prevent taxpayers from engaging in tax system arbitrage and seeking to exploit differences in countries' tax systems.

Hybrid mismatches exploit differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdiction, typically to achieve double non taxation or a double deduction for the same income.

The EU's latest ATAD – ATAD 2 – is intended to ensure that hybrid mismatches of all types cannot be used to avoid tax in the EU, even where the arrangements involve third countries. The proposal addresses hybrid mismatches with regard to non-EU countries, given that intra-EU disparities are already covered by the first ATAD adopted in July 2016.

The Government undertook a consultation last November on the implementation of these new anti-hybrid rules, with the intention of introducing legislation in Finance Bill 2019.

In a newly released feedback paper, the Finance Department said many stakeholders noted during that consultation process that the new anti-hybrid provisions will be complex and highly technical in nature. Clarity was sought on current domestic practices, in order for the anti-hybrid rules to operate effectively, and many submissions also reportedly noted the difficulties and unintended consequences that have been encountered in other jurisdictions where these rules have already been implemented, due to their "novel and complex nature."

The feedback paper responds to these views and outlines possible approaches to some of the technical aspects of the anti-hybrid rules, to enable taxpayers to understand how the new rules will operate from January 1, 2020. Among other things, the feedback paper sets out a range of definitions.

The Finance Department said it wants to ensure that the anti-hybrid rules meet the standards required under ATAD 2, while also being clear and operable in practice. It underscored that Ireland's regime must remain consistent with new international standards that link tax outcomes to economic substance in a territory.

The closing date for submissions on the feedback statement is September 6.

TAGS: compliance | tax | double tax agreement (DTA) | tax compliance | Ireland | tax avoidance | revenue guidance | legislation | transfer pricing | standards | European Union (EU) | Europe | BEPS

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