Limiting Base Erosion

S. 231. Introduction

The counteraction of tax planning approaches that exploit hybrid financial instrument mismatches began some years before Action 2 was officially published. In 2012, the “The Hybrid Mismatch Arrangements: Tax Policy and Compliance Issues” report was released by the OECD. Actually, in the case of the bank anti-avoidance report “Corporate Loss Utilisation through Aggressive Tax Planning” (published in 2011), one of the issues addressed therein referred to the use of certain types of financial instruments. The issue had been drawing attention from the European Union since November 2013, when the European Commission put forward a proposal to amend the Parent-Subsidiary Directive (EU Directive 2011/96) with the aim of combating mismatches attributable to hybrid financial instruments.

Action 2 represents the completion of a series of initiatives taken by the OECD over these past five years pursuing aggressive tax structures planned by multinational entities in order to avail themselves of mismatches arising from transactions involving financial instruments. The challenge which the OECD member countries face requires them to implement the Recommendations contained therein int...