The Dutch government published a legislative proposal engaging rules to counter hybrid mismatches into the Dutch corporate income tax act pursuant to the EU Anti-Tax Avoidance Directive as agreed upon in May 2017 (ATAD2).
ATAD2 would address tax avoidance via hybrid mismatches in affiliated relationships. Hybrid mismatches concern situations when differences between tax systems are used with regard to the qualification of entities, instruments or permanent establishments. Hybrid mismatches may result in a tax deduction, whereby the corresponding income is not taxed anywhere, or whereby the same payment is deducted several times.
The bill distinguishes between hybrid mismatches with Hybrid entities, Hybrid financial instruments, Hybrid permanent establishments, Hybrid transfers, imported hybrid mismatches, and Situations involving dual domicile.
Similar to ATAD2, the consequences of these hybrid mismatches would be neutralized. Depending on the mismatch and the treatment outside the Netherlands, this would be by refusing the deduction or taxing the income. The neutralization would only take place to the extent necessary to neutralize the mismatch (pro rata).
The hybrid mismatch rules are proposed to apply to financial years commencing on or after 1 January 2020.
