Hybrid Entities in Tax Treaty Law

S. 5321. Introduction

The purpose of this contribution is to analyse how the EU Directives on direct corporate taxation – in particular the Parent-Subsidiary Directive (hereinafter PSD) and Interest and Royalty Directive (hereinafter IRD) – deal with the issues arising from the use of hybrid and reverse hybrid entities and to highlight some of the unresolved problems. In particular, the focus is on the application of the two directives in the case of classification conflicts, i.e. when Member States (MSs) classify an entity differently and thus allocate the income to different recipients.

Regarding the structure, Sections 2. and 3. of the contribution briefly provide an overview of the personal and substantive scope – respectively – of the PSD and IRD and focus on the application to hybrid and reverse hybrid entities in outbound and inbound situations. Then, Section 4. makes a comparison between the two directives on some provisions that pose particular interest for their application to hybrids. Furthermore, Section 5. will explore whether and to what extent it is possible to use hybrid entities as a tax planning technique for directive shopping. In the conclusion, the author will discuss the rema...