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Neutralizing effects of hybrid mismatch arrangementsDespite a focus on D/NI and DD outcomes, “Action 2 is notintended to capture all arrangements that have the effect of loweringthe aggregate tax burden of the parties to an arrangement.” 24 Theproblem is that the OECD is not focused on lower taxation as such, butmismatches leading to lower taxation. 25 The OECD Public DiscussionDraft on BEPS Action 2 — Domestic Issues recognizes that somecountries may intentionally create a mismatch that is “economicallycloser to a tax exemption or similar taxpayer specific concession.” Itseems that such intentional mismatches are not “tax outcomes in thesense contemplated by Action 2.” 26 This seems an impossible distinctionto administer and the OECD Action 2 — 2014 Deliverable avoidsthe issue by isolating it in the context of “deemed” payments, but thatraises its own issues. 27 There are many circumstances in which countriesthat are viewed as financial centres create intentional mismatchesfor exemption or concessionary purposes. It is not clear how a countrywould be expected to identify these and whether one country isexpected to respect the intentions of another. 28and the remaining 30 to be a dividend, which it exempts (for example, participationexemption). Subsequently, the company sells the asset at a loss andclaims a deduction for it. Is this arrangement caught by a D/NI rule?24OECD Public Discussion Draft on BEPS Action 2 — Domestic Issues,supra note 2, paragraph 22.25Nathan Boidman and Michael Kandev, “BEPS Action Plan on HybridMismatches: A Canadian Perspective,” supra note 1, 1234-1235, make asimilar point.26OECD Public Discussion Draft on BEPS Action 2 — Domestic Issues,supra note 2, paragraph 22. The example given is where a country has createda specific deduction “for invested equity” as under an allowance for corporateequity (“ACE”) system. For the ACE system, see Institute for Fiscal Studies,Equity for companies: A corporation tax for the 1990s (London: Institute forFiscal Studies, 1991) and James Mirrlees, Stuart Adam, Tim Besley and others(2011), Tax by Design [The Mirrlees Review] (Oxford: Oxford UniversityPress, 2011), 421-5, available at http://www.ifs.org.uk/mirrleesReview/design.27OECD Action 2 — 2014 Deliverable, supra note 2, paragraph 45, confirmsthat the proposals are not meant to cover an ACE allowance. However,what about a country like Brazil where the interest on net equity system issimilar to the ACE system but does require a payment?28For example, would a general deduction for dividends such as can arisein Australia for redeemable preference shares with a term of less than 10 years213