The OECD recently released a report addressing branch mismatch arrangements.
This new report recommends domestic rules to stop taxpayers from using branches to generate deductions with no corresponding taxation from the same payment (made by or to the branch) or from generating multiple deductions for a single expense. The report also proposes targeted branch mismatch rules that can adjust the tax consequences in either the residence or branch jurisdiction, so that the mismatch can be neutralized without disturbing any of other tax, commercial or regulatory outcomes.
Branch mismatches can occur when the branch jurisdiction and the taxpayer's resident jurisdiction take a different view of the existence of, or the allocation of income or expenditure between, the branch and head office of the same taxpayer. This mismatch may exclude a portion of the taxpayer's net income from appropriate taxation in both the branch and residence jurisdictions.
This report is based on the OECD's BEPS Action 2: Neutralizing the Effects of Hybrids Mismatch Arrangements, which focused on neutralizing the effects of mismatches that result from differences in the tax treatment or characterization of hybrid entities and hybrid instruments. This new report was necessary because BEPS Action 2 did not directly consider similar issues that can arise through the use of branch structures, even though branch mismatches can raise the same issues in terms of competition, transparency, efficiency and fairness.
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Information is current to August 08, 2017. 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