Hybrid Entities in Tax Treaty Law

S. 2161. Introduction

The present chapter will discuss the interplay between tax treaty entitlement of hybrid entities and the beneficial owner requirement.

The wording in Article 1(2) of the 2017 OECD Model Convention, in essence, implements the overall outcome of the 1999 OECD partnership report which, in the case of hybrids partnerships, the source state must follow the characterization of the state where the entity is located (i.e. often the residence state). This result was obviously one of the main criticism by scholars.

Article 1(2) is also the result of the Action 2 Final Report in the OECD Base Erosion and Profit Shifting Project (BEPS). Chapter 14 of the report recognizes the importance of the conclusions in the 1999 partnership report dealing with partnerships mismatches but expresses that this report only deals with partnerships and not with other types of entities. Also, it is stressed that some states had found difficulties in applying conclusions that were only in the Commentary of OECD Model Convention but not in the wording of the OECD Model Convention. Chapter 14 of the report suggests a new provision of Article 1(2) that was included in the 2017 OECD Model Convention and ...