OECD: Discussion draft, branch mismatch structures | KPMG | GLOBAL
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OECD: Discussion draft, branch mismatch structures under BEPS Action 2

OECD: Discussion draft, branch mismatch structures

The Organisation for Economic Cooperation and Development (OECD) today released a discussion draft concerning branch mismatch structures under Action 2 (Neutralising the effects of hybrid mismatch arrangements) of the base erosion and profit shifting (BEPS) project.


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Recommendations under the BEPS Action 2 report, on neutralising the effects of hybrid mismatch arrangements for domestic rules, were designed to neutralise mismatches in tax outcomes that arise in respect of payments under a hybrid mismatch arrangement. Among the recommendations of the BEPS Action 2 report are rules targeting payments made by or to a hybrid entity that give rise to one of three types of mismatches:

  • Deduction / no inclusion outcomes, when the payment is deductible under the rules of the payer jurisdiction but not included in the ordinary income of the payee
  • Double deduction outcomes, when the payment triggers two deductions in respect of the same payment
  • Indirect deduction / no inclusion outcomes, when the income from a deductible payment is set-off by the payee against a deduction under a hybrid mismatch arrangement

The BEPS Action 2 report includes specific recommendations for improvements to domestic law intended to reduce the frequency of these types of mismatches as well as for targeting hybrid mismatch rules that adjust the tax consequences in either the payer or payee jurisdiction in order to neutralise the hybrid mismatch without disturbing any of the other tax, commercial or regulatory outcomes. 

Discussion draft

As noted in today’s OECD release, the discussion draft under BEPS Action 2 applies the analysis and recommendations set out in the BEPS Action 2 report to mismatches that can arise through the use of branch structures. The discussion draft:

  • Identifies five basic types of branch mismatch arrangements
  • Sets out preliminary recommendations for domestic rules, based on those in the BEPS Action 2 report that would neutralise the resulting mismatch in tax outcomes

Comments are invited on the discussion draft, and are due by 19 September 2016.

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