| Author (Corporate) | European Commission |
|---|---|
| Series Title | COM |
| Series Details | (2016) 687 final (25.10.16) |
| Publication Date | 25/10/2016 |
| Content Type | Policy-making |
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Hybrid mismatch arrangements exploit differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions to achieve double non-taxation. These types of arrangements are widespread and result in a substantial erosion of the taxable bases of corporate taxpayers in the EU. Therefore, it is necessary to lay down rules against this kind of tax base erosion. The hybrid mismatch rules in the Council Directive laying down rules against tax avoidance practices that directly affect the functioning of the internal market (the Anti-Tax Avoidance Directive) address the most widespread forms of hybrid mismatches, but only within the EU. Article 9 of the Anti-Tax Avoidance Directive targets hybrid mismatches arising from differences in the legal characterisation of an entity or a financial instrument between a taxpayer in a Member State and an associated enterprise in another Member State or from a structured arrangement between parties in Member States. However, taxpayers in the EU engaged in cross-border structures involving third countries also take advantage of hybrid mismatches to reduce their overall tax liability in the EU. Therefore, it is widely recognised that hybrid mismatches involving third countries should be countered as well. Furthermore, there are other types of mismatches, such as hybrid permanent establishment mismatches, hybrid transfers, so-called imported mismatches and dual resident mismatches, which are not addressed in Article 9 of the Anti-Tax Avoidance Directive. As part of the final compromise proposal for the Anti-Tax Avoidance Directive that was agreed on 20 June 2016, the ECOFIN Council issued a statement on hybrid mismatches. In this statement the ECOFIN Council requests the Commission "to put forward by October 2016 a proposal on hybrid mismatches involving third countries in order to provide for rules consistent with and no less effective than the rules recommended by the OECD BEPS report on Action, with a view to reaching an agreement by the end of 2016." This Directive lays down rules against hybrid mismatches involving third countries. Furthermore, this Directive addresses hybrid mismatches involving permanent establishments, both in their intra-EU and third-country dimension, hybrid transfers, imported mismatches and dual resident mismatches. |
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| Source Link | http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM:2016:687:FIN |
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| Subject Categories | Taxation |
| Countries / Regions | Europe |
