Hybrid Entities in Tax Treaty Law

S. 261. Introduction

Partnerships have been widely used in business structures for many decades. In some countries, business structures are dominated by partnerships, as, for instance, in Germany where a survey showed this to be so for eighty percent of business. This fact leads to the question: What makes a partnership preferred to any other legal form of business?

Generally speaking, in many countries, partnerships are more flexible and offer more advantages compared to corporations. There are at least three reasons why partnerships are preferred to corporations in many situations. First, corporations are usually subject to stricter and more rigid rules compared to partnerships. Partnerships usually offer low entry-level. Unlike corporations, partnerships in most countries are not incorporated or registered in a commercial or trade register, and even if there is a notification requirement, the submissions are only recorded without being verified.

Second, in many countries, partnerships offer more legal forms to choose from compared to corporations. Entrepreneurs will tend to choose the right, flexible, and tailor-made legal form for their businesses. In fact, partnerships are usually use...