handbook-tb

Neutralizing effects of hybrid mismatch arrangements2.1 Hybrid mismatch arrangementsWhile the OECD does not comprehensively define hybrid mismatcharrangement, the OECD Public Discussion Draft on BEPS Action2 — Domestic Issues does outline the key elements of such an arrangement.These elements are:‣ ¾ The arrangement results in a mismatch in the tax treatment ofa payment;‣ ¾ The arrangement contains a hybrid element;‣ ¾ The hybrid element causes a mismatch in tax outcomes;‣ ¾ The mismatch in tax outcomes lowers the aggregate tax paid bythe parties to the arrangement. 18There is no attempt to separately define “hybrid,” “mismatch” or“arrangement,” but it seems the OECD views at least the first two in asimilar fashion, as discussed in the introduction to the present chapter.In particular, “hybrid” clearly focuses on two countries viewingthe same income tax fundamental in a different way, and “mismatch”focuses only on outcomes that are beneficial to the taxpayer (and notthose that might result in double taxation).There is little discussion of the scope of “arrangement” in theOECD Action 2 — 2014 Deliverable or in the OECD Public DiscussionDraft on BEPS Action 2 — Domestic Issues, and the matters coveredare restricted in a number of ways. The OECD does not intend thatarrangement cover all dealings that can have a tax effect. One majordifficulty with both documents is identifying what is intended to becovered and what is not. In particular, it seems that “payment” is acritical feature of the scope of both, and then only payments involvinghybrid financial instruments and hybrid entities.even mismatches involving only financing instruments, which seems toonegative. See OECD Public Discussion Draft on BEPS Action 2 — DomesticIssues, supra note 2, paragraph 50.18OECD Public Discussion Draft on BEPS Action 2 — Domestic Issues,supra note 2, 8-10. OECD Action 2 — 2014 Deliverable, supra note 2, paragraph41, is more obscure, but when paragraphs 42 to 44 are also considered,it covers the same ground.211