OECD Releases Discussion Draft On Branch Mismatch (Action 2)

The OECD invited interested parties to provide comments on branch mismatch structures under Action 2 (Neutralizing the Effects of Hybrid Mismatch Arrangements) of the BEPS Action Plan.


The OECD BEPS Action 2 Report on Neutralizing the Effects of Hybrids Mismatch Arrangements sets out recommendations for domestic rules designed to neutralize mismatches in tax outcomes that arise in respect of payments under a hybrid mismatch arrangement. The report recognizes three types of mismatches:

  1. deduction/no inclusion (D/NI) outcomes;
  2. double deduction (DD) outcomes;
  3. indirect deduction/no inclusion (indirect D/NI) outcomes.

Discussion Draft

The OECD invites the public to comment on the five basic types of branch mismatch arrangements identified in the discussion document:

  1. Disregarded branch structures where the branch does not give rise to a permanent establishment (PE) or other taxable presence in the branch jurisdiction;
  2. Diverted branch payments where the branch jurisdiction recognizes the existence of the branch but the payment made to the branch is treated by the branch jurisdiction as attributable to the head office, while the residence jurisdiction exempts the payment from taxation on the grounds that the payment was made to the branch;
  3. Deemed branch payments where the branch is treated as making a notional payment to the head office that results in a mismatch in tax outcomes under the laws of the residence and branch jurisdictions;
  4. DD branch payments where the same item of expenditure gives rise to a deduction under the laws of both the residence and branch jurisdictions; and
  5. Imported branch mismatches where the payee offsets the income from a deductible payment against a deduction arising under a branch mismatch arrangement

Members of the public are invited to comment on the preliminary recommendations set out in this document and are specifically requested to provide input on the “Questions for Consultation” highlighted at the end of each section.

Comments should be submitted by September 19, 2016 at the latest.

Source: OECD - Press Release, OECD - Discussion Draft


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