Hybrid Entities in Tax Treaty Law

S. 3781. Introductory remarks

The exhaustive search for harmonization and efficient interrelationship between the different domestic tax systems in cross-border transactions through double taxation conventions (DTC) has not been and will not cease to be a difficult task. The global regulations are constantly changing and, on the one hand, bring restrictions that contribute to the fight against double taxation or non-taxation but, on the other hand, bring loopholes that are used by taxpayers to create effective tax planning according to their intentions.

The previous chapters of this book have referred to hybrid entities, however, this particular chapter will refer to hybrid permanent establishment structures and how the conceptual differentiation that each country has about them can considerably affect the implementation of a DTC between the countries in question.

Following the Model Tax Convention on Income and on Capital (OECD Model), the permanent establishment, by definition, means a fixed place of business through which the business of an enterprise is wholly or partly carried on. In principle, it generates income in a different state from the state where the head office is established...