handbook-tb

Neutralizing effects of hybrid mismatch arrangementsThe OECD does not expect countries literally to transcribe itsrecommendations into their domestic law, and generally the recommendationsare not suited to this purpose. However, there must be arisk that some countries will do so. The OECD recommendations arecoordinated, but nevertheless are broad statements that are likely to beinsufficiently precise for direct implementation by countries. Further,direct implementation may cause inconsistencies with other parts ofa country’s tax law. Many domestic tax laws are littered with foreignimports of this variety that cause substantial dislocations within thelaw. Proper implementation of the OECD recommendations requiresthat they be understood and adapted to fit into the legal system inwhich they are being adopted.To work out which chapter of the OECD Action 2 — 2014Deliverable is at issue, it is necessary to determine whether there isa “D/NI” or “DD” outcome. The definitions of these terms in chapter7 of the OECD Action 2 — 2014 Deliverable have many difficultiesand much imprecision. At least three steps are necessary to determineeither outcome: (a) identify a payment, (b) identify the jurisdictions ofthe payer and payee and (c) determine the deductibility and inclusionin ordinary income of the payment.The reference to “payment” raises all of the issues surroundingthat concept discussed in section 1.2 above. The definition of “payment”is fundamentally inadequate and raises more issues than itsolves. “Payment” is defined to include anything that is “capable ofbeing paid” but to exclude “deemed” payments (if they do not “involvethe creation of economic rights”) and to include “aggregate amounts”under a hybrid transfer. Suffice it to say that none of these terms isprecise, none of them is defined and all are likely to give rise to dispute.Further, it is unclear whether in-kind benefits should be included andif so which types. Only the definition of “D/NI outcome” notes thattiming and some quantification issues regarding a payment are to beignored, that is to say, the definition of “DD outcome” does not.It is also necessary to identify the “payer jurisdiction” and the“payee jurisdiction.” Each phrase is defined by reference to other terms.These definitions seem to suggest that it will be clear who made a paymentand who receives it. The definitions do not account for the inevitabilitythat different jurisdictions will consider different persons to be227