OECD: Initial analysis of discussion draft, branch mismatch structures

OECD: Initial analysis of discussion draft

The Organisation for Economic Cooperation 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.

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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:

  • Disregarded branch structures
  • Diverted branch payments
  • Deemed branch payments
  • Double deduction (“DD”) branch payments
  • Imported branch mismatches

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

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