Neutralising the Effects of Branch Mismatch Arrangements, Action 2
Inclusive Framework on BEPS
This 2017 report sets out recommendations for branch mismatch rules that would bring
the treatment of these structures into line with the treatment of hybrid mismatch
arrangements as set out in the 2015 Report on Neutralising the Effects of Hybrids
Mismatch Arrangements (Action 2 Report). Branch mismatches arise where the ordinary
rules for allocating income and expenditure between the branch and head office result
in a portion of the net income of the taxpayer escaping the charge to taxation in
both the branch and residence jurisdiction. Unlike hybrid mismatches, which result
from conflicts in the legal treatment of entities or instruments, branch mismatches
are the result of differences in the way the branch and head office account for a
payment made by or to the branch. The 2017 report identifies five basic types of branch
mismatch arrangements that give rise to one of three types of mismatches: deduction
/ no inclusion (D/NI) outcomes, double deduction (DD) outcomes, and indirect deduction
/ no inclusion (indirect D/NI) outcomes. This report includes specific recommendations
for improvements to domestic law intended to reduce the frequency of branch mismatches
as well as targeted branch mismatch rules which adjust the tax consequences in either
the residence or branch jurisdiction in order to neutralise the hybrid mismatch without
disturbing any of the other tax, commercial or regulatory outcomes. The annexes of
the report summarise the recommendations and set out a number of examples illustrating
the intended operation of the recommended rules.
Published on July 27, 2017Also available in: French
In series:OECD/G20 Base Erosion and Profit Shifting Projectview more titles
Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid.