Hybrid and branch mismatch arrangements are arrangements that exploit differences in the tax treatment of an instrument, entity or branch under the laws of two or more countries. A hybrid or branch mismatch arrangement can result in a deduction with no corresponding taxable income inclusion or a single payment leading to a double deduction. The result of a hybrid mismatch arrangement is less aggregate tax revenue collected in the jurisdictions to which the arrangement relates. The OECD in its BEPS Action Plan made a number of recommendations to help countries deal with hybrid and branch mismatches. This Bill includes a comprehensive adoption of the OECD recommendations with suitable modification for the New Zealand context. Some of the OECD’s recommended rules are divided into and “primary” “defensive” responses. A defensive response will generally only apply if the other country affected by the arrangement does not have hybrid rules. Where there are two or more parties to a mismatch, the mismatch rules generally only apply if there is some degree of association between the relevant parties to the arrangement, or if the arrangement has been structured to achieve a mismatch. This Bill contains proposed rules designed to address the following hybrid and branch mismatches: hybrid financial instruments; disregarded hybrid payments; structures producing double deductions; reverse hybrids; dual resident entities; imported mismatches; and deemed branch payment and mismatches. (Clause 30, section FH 3 and FH 4) Summary of proposed amendments
Hybrid and branch mismatch arrangements are arrangements that exploit differences in the tax treatment of an instrument, entity or branch under the laws of two or more countries. A hybrid or branch mismatch arrangement can result in a deduction with no corresponding taxable income inclusion or a single payment leading to a double deduction. The result of a hybrid mismatch arrangement is less aggregate tax revenue collected in the jurisdictions to which the arrangement relates. The OECD in its BEPS Action Plan made a number of recommendations to help countries deal with hybrid and branch mismatches. This Bill includes a comprehensive adoption of the OECD recommendations with suitable modification for the New Zealand context. Some of the OECD’s recommended rules are divided into “primary” and “defensive” responses. A defensive response will generally only apply if the other country affected by the arrangement does not have hybrid rules. Where there are two or more parties to a mismatch, the mismatch rules generally only apply if there is some degree of association between the relevant parties to the arrangement, or if the arrangement has been structured to achieve a mismatch. This Bill contains proposed rules designed to address the following hybrid and branch mismatches: hybrid financial instruments; disregarded hybrid payments; structures producing double deductions; reverse hybrids; dual resident entities; imported mismatches; and deemed branch payment and mismatches. (Clause 30, section FH 3 and FH 4) Summary of proposed amendments
2017-commentary-nbeps-bill.docx