The Organisation for Economic Cooperation and Development (OECD) today released a report containing recommendations under Action 2 of the base erosion and profit shifting (BEPS) project. The topic of BEPS Action 2 is: Neutralising the effects of branch mismatch arrangements.
Today’s OECD report sets out recommendations for domestic rules to end the use of hybrid entities to generate multiple deductions for a single expense or deductions without corresponding taxation of the same payment.
The OECD in 2015 issued a report that addressed mismatches that result from differences in the tax treatment or characterization of hybrid entities; however, the 2015 report did not directly consider similar issues that can arise through the use of branch structures. These branch mismatches occur when two jurisdictions take a different view as to the existence of—or the allocation of income or expenditure between—the branch and head office of the same taxpayer. As the OECD noted, these differences can produce the same kind of mismatches that are targeted in the 2015 report and thus raising the same issues in terms of competition, transparency, efficiency and fairness.
Today’s report sets out recommendations for changes to be made to domestic law that would bring the treatment of these branch mismatch structures into line with outcomes described in the 2015 report.
Read an August 2017 report prepared by the KPMG member firm in the UK
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