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Chapter VNeutralizing effects of hybrid mismatcharrangementsPeter A. Harris*The use of hybrid mismatch arrangements is one of the ways in whichlarge multinationals can end up effectively paying lower tax rates thanthe small domestically bound enterprises that multinationals oftencompete with. This is a major concern for most countries, includingdeveloping countries. Hybrid mismatch arrangements are not new ininternational tax. 1 Conceptually, it has always been possible to engagein such arrangements for the purpose of minimizing tax. What haschanged is the proliferation of hybrid mismatch arrangements, theease with which they can be achieved and their comparative importance.This change is largely a function of the increase in electroniccommerce and globalization. Such arrangements are not “wrong” perse — they are simply a function of two countries having, typically unilaterally,decided not to tax a particular cross-border dealing or givesome other favourable tax effect (such as a deduction). What might beconsidered “wrong” is the manner in which tax advisers and multinationalshave in recent years aggressively sought out and exploited sucharrangements.Before discussing manners in which “hybrid mismatch arrangements”can be “neutralized,” it is necessary to identify exactly what sucharrangements are. This is not an easy task because the phrase hybridmismatch arrangement is not logically bound from a tax perspectiveand so it is only possible to discuss a generally understood meaning. 2 It*Professor of Law, University of Cambridge, United Kingdom.1See Nathan Boidman and Michael Kandev, “BEPS Action Plan onHybrid Mismatches: A Canadian Perspective,” (2014) Vol. 74, Tax NotesInternational, 1233.2Organisation for Economic Co-operation and Development, OECD/G20 Base Erosion and Profit Shifting Project: Neutralising the Effects ofHybrid Mismatch Arrangements — Action 2: 2014 Deliverable (Paris: OECD,2014) (OECD Action 2 — 2014 Deliverable), available at http://www.oecd.org/187