Limiting Base Erosion

S. 681. Introduction

The general purpose of this contribution is to analyse selected aspects of the recommendations of the OECD for Reverse Hybrids. The main question to be analysed is how the OECD recommendations for Reverse Hybrids will be applied in domestic tax systems. It has to be assumed that these recommendations will apply in very broad circumstances, particularly in relation to hybrid financial instruments between related parties.

As it was pointed out in the OECD Action Plan, “tax policy is at the core of country’s sovereignty and each country has the right to design its tax system in the way it considers most appropriate.” The existence of entities or arrangements that are perceived differently by the source state and the investors state is a consequence of that rule. Realizing worldwide coordination in respect to corporate tax residence should lead to reduction of the scope for tax arbitrage, making controlled foreign companies legislation necessary. The OECD has expressed a need to prevent double non-taxation by applying cohesive policy measures to create new common rules for international taxation and economic cooperation in respect to BEPS. One of the areas where OECD prop...