The Organization for Economic Co-operation and Development (OECD) has issued discussion drafts in connection with Action Item 2 of the base erosion and profit shifting (BEPS) Action Plan. This action item is concerned with ways to legislate against hybrid mismatch arrangements that exploit the different treatment of hybrid instruments or entities in two different jurisdictions to create a tax advantage for a group of companies.
The first discussion draft discusses ways to counter the effects of hybrid mismatch arrangements and discusses possible ways of drafting domestic rules to neutralize the effect of these arrangements.
The second discussion draft is also concerned with how to combat the effects of hybrid mismatch arrangements and discusses tax treaty aspects of the issue. The second draft looks at the effect of the OECD Model Convention on the hybrid mismatch rules and looks at the possibility of amendments to the OECD model treaty to allow clearer rules for the treatment of hybrid entities.
