BEPS Action 2 — OECD Discussion Draft | KPMG | CA
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OECD Discussion Draft - Applies Action 2 Recommendations to Branch Mismatch Structures

BEPS Action 2 — OECD Discussion Draft

The OECD has released a discussion draft on branch mismatch structures under Action 2 of the BEPS Action Plan.


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Action 2, titled Neutralising the Effects of Hybrid Mismatch Arrangements, recommends that countries change their domestic rules to neutralize the mismatches in tax outcomes that can arise in respect of payments under a hybrid mismatch arrangement. This OECD discussion draft applies the analysis and recommendations in the Action 2 report to mismatches that can arise through the use of branch structures.

The discussion draft identifies five types of branch mismatch arrangements:

  • Disregarded branch structures - Where the branch jurisdiction does not recognize the existence of the branch and therefore does not subject the payment to tax, while the residence jurisdiction recognizes the branch and does not tax the payment on the basis that it is allocable to the branch
  • Diverted branch payments - Where the branch jurisdiction recognizes the existence of the branch but the payment made to the branch is treated by the branch jurisdiction as attributable to the head office while the residence jurisdiction exempts the payment from tax because the payment was made to the branch
  • Deemed branch payments - Where the branch is deemed to make a notional payment to the head office resulting in a mismatch in tax outcomes under the laws of the residence and branch jurisdictions
  • Double deduction branch payments - Where the same expenditure gives rise to a deduction in both the residence and branch jurisdictions and
  • Imported branch mismatches - Where the payee offsets the income from a deductible payment against a deduction arising under a branch mismatch arrangement.

Interested parties are invited to send comments on the questions for consultation in the draft discussion by September 19, 2016.

For more information, contact your KPMG adviser.

Information is current to August 30, 2016. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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