BEPS: Neutralising Hybrid Mismatch Arrangements
On 5 October 2015, ahead of the G20 Finance Ministers’ meeting in Lima on 8 October, the OECD Secretariat published thirteen papers and an Explanatory Statement outlining consensus Actions under the Base Erosion and Profit Shifting (‘BEPS’) Project. These papers include and consolidate the first seven reports presented to and welcomed by the G20 Leaders at the Brisbane Summit in 2014.
The output under each of the BEPS Actions are intended to form a comprehensive and cohesive approach to the international tax framework, including domestic law recommendations and international principles under the model tax treaty and transfer pricing guidelines.
As part of the 2015 output, the OECD has published a Final Report on Action 2 (‘the Report’) in relation to neutralising the effects of hybrid mismatch arrangements, which proposes domestic law amendments and treaty changes.
In Australia, following announcements made in the May 2015 Federal Budget, the Board of Taxation (‘the Board’) is currently consulting on the implementation of anti-hybrid rules in accordance with the OECD’s recommendations under Action 2. The Board is required to report by March 2016 in time for the May 2016 Federal Budget.
The proposed rules are expected to impact the tax outcomes arising from a number of commonly used financing approaches in Australia. Taxpayers should consider the potential application of the rules to their financing structures and the associated tax, financial reporting, legal and treasury issues which may arise – including the potential need to refinance existing structures.