27/07/2017 – Today, the OECD released a report ‘Branch Mis-matches’: Neutralising the Effects of Branch Mismatch Arrangements (BEPS Action 2).
This is similar to the ‘Hybrid Mismatches’ dealt with in October 2015, when the OECD published a report on Neutralising the Effects of Hybrid Mismatch Arrangements (OECD, 2015). This was as part of the final BEPS package, the OECD/G20. This report set out recommendations for domestic rules that put an end to the use of hybrid entities to generate multiple deductions for a single expense or deductions without corresponding taxation of the same payment. This follows from differences in the tax treatment or characterisation of hybrid entities.
There are similar issues from the use of branch structures. These branch mismatches occur where two jurisdictions take a different view as to the existence of, or the allocation of income or expenditure between branches or the branch and the head office of the same taxpayer. These differences can produce the same kind of mismatches that are targeted by the 2015 Report thereby raising the same issues in terms of competition, transparency, efficiency and fairness.
Accordingly, this new report sets out recommendations for changes to domestic law that would bring the treatment of these branch mismatch structures into line with outcomes described in the 2015 Report.
By way of background, in 2013, the OECD and G20 countries addressed ‘base erosion and profit shifting’ (BEPS) is a key priority of governments around the globe. Working together on an equal footing, they adopted a 15-point Action Plan to address BEPS. In 2015, the BEPS package of measures was endorsed by G20 Leaders and the OECD. In order to ensure the effective and consistent implementation of the BEPS measures, the Inclusive Framework on BEPS was established in 2016 and already has 102 members. It brings together all interested countries and jurisdictions on an equal footing at the OECD Committee on Fiscal Affairs.
[FJM, OECD media release; LTN 142, 28/7/17]