Hybrid Entities in Tax Treaty Law

Anggi Padoan Ibrahim Tambunan

S. 1631. Overview

Hybrid entity has become a demanding issue in tax law. and was discussed in the eighth session of the Committee of Experts on International Cooperation in Tax Matters (hereinafter the “Committee”). This session became the first step process for the United Nations (hereinafter “UN”) as one of the leading world tax policies to solve issues of a hybrid entity.

Hybrid entity itself can be referred to as a situation, in which, under the domestic law of a state, the income (or part thereof) of the entity is not taxed at the level of the entity, but at the level of the person who has an interest in that entity. In other words, a country may treat an entity as a transparent entity. However, other countries will treat such entity as a taxable entity, thus deeming such income to be derived by or through that entity. The consequences of this inconsistet treatment are including (a) double taxation resulting from the inappropriate denial of tax treaty benefits, (b) non-taxation resulting from the unintended granting treaty benefits, or (c) the granting of the inappropriate level of treaty benefits.

To avoid such consequences, and as a result of discussion b...