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OECD Consults Stakeholders On Branch Mismatch Structures

by Ulrika Lomas, Tax-News.com, Brussels

23 August 2016


The Organisation for Economic Co-operation and Development (OECD) has released for public comment a discussion draft targeting branch mismatch structures as part of its work under Action 2 of the base erosion and profit shifting (BEPS) project.

The BEPS Action 2 Report – Neutralizing the Effects of Hybrids Mismatch Arrangements – sets out recommendations for domestic rules designed to neutralize mismatches in tax outcomes that arise in respect of payments under a hybrid mismatch arrangement. The Report sets out rules targeting payments made by or to a hybrid entity that give rise to one of three types of mismatches:

  • Deduction/no inclusion (D/NI) outcomes, where the payment is deductible under the rules of the payer jurisdiction but not included in the ordinary income of the payee;
  • Double deduction (DD) outcomes, where the payment triggers two deductions in respect of the same payment; and
  • Indirect deduction/no inclusion (indirect D/NI) outcomes, where the income from a deductible payment is set-off by the payee against a deduction under a hybrid mismatch arrangement.

The discussion draft, which was released on August 22, 2016, applies the analysis and recommendations set out in the Action 2 Report to mismatches that can arise through the use of branch structures. The discussion draft identifies five basic types of branch mismatch arrangements and sets out preliminary recommendations for domestic rules, based on those in the Action 2 Report, which would neutralize the resulting mismatch in tax outcomes. It seeks input in response to specific questions in this respect.

Comments must be received by September 19, 2016.

TAGS: tax | investment | business | tax avoidance | law | Organisation for Economic Co-operation and Development (OECD) | enforcement | agreements | multinationals | tax planning | transfer pricing | G20 | tax reform | trade | European Union (EU) | Europe | BEPS

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