The Organisation for Economic Co-operation and Development (OECD) this week released for public discussion a draft report that identifies and analyzes mismatches in tax outcomes that can arise through the use of branch structures.
This discussion draft—the “Branch Mismatch Report” [PDF 295 KB]—was issued as part of Action 2 of the base erosion and profit shifting (BEPs) project, and sets out preliminary recommendations for rules to be enacted into domestic law to neutralize the mismatches arising from the use of certain branch structures identified in the report. Due to similarities between branch mismatches and mismatches involving hybrid entities, the rules recommended by the Branch Mismatch Report are described as extensions of, or analogous to, recommendations contained in the OECD’s BEPS Action 2 report, Neutralising the Effects of Hybrids Mismatch Arrangements (released in 2015).
The Branch Mismatch Report identifies five types of branch mismatch arrangements:
Most of these types of mismatches were not addressed in the recommendations of the BEPS Action 2 report, because technically they are not the result of hybridity in the treatment of an entity, instrument, or transfer. The mechanics and tax outcome of the branch mismatch arrangements, however, are similar to the mismatches targeted in the BEPS Action 2 report, and draft legislation in the UK to implement the recommendations of the Action 2 report also includes a provision dealing with mismatches due to a permanent establishment.
Read an August 2016 report [PDF 269 KB] prepared by KPMG LLP
© 2016 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor 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 on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.