Hybrid Entities in Tax Treaty Law

S. 6101. Introduction

Influenced by the OECD BEPS Project, the EU issued the ATAD in 2016 in order to counter-attack aggressive tax planning. Focused strictly on the corporate taxpayers, the ATAD contains the following rules: interest limitation; exit taxes; the GAAR; CFC; and hybrids mismatches. A year later, ATAD 2 was enacted in order to complement the previous directive regarding hybrid mismatches and third countries. The first part of the present work analyzed the main features of the ATAD, its scope based on corporate taxpayers, and the measures applied regarding PEs. Then, the analysis focuses on the Interest Limitation Rule, the GAAR, the CFC rules, and exit taxes in their interaction with hybrids entities. Additionally, the present work reviews the interaction of these measures with Article 9 on hybrids mismatches because, in some cases, the different provisions of the ATAD may overlap, so it is critical to unravel how the rule will be applied and which rule will have priority over the other.

2. ATAD 1

2.1. History

On 28 January 2016, the Commission of the European Union published the Anti-Tax Avoidance Package. The package included, among other actions, a proposal for an Anti-Tax A...