Non-Discrimination in European and Tax Treaty Law

I. S. 164Introduction

In the current scenario of international tax law, characterized by the accelerated pace of intersections among different tax systems, cross-border tax arbitrage represents a central challenge for the European Union and other countries around the world, due to the fact that the inherent differences in the tax rules of several jurisdictions created unique opportunities for taxpayers to engage in tax planning strategies. The potential opportunities for tax arbitrage, in which a taxpayer relies on differences between two tax systems to structure a cross-border transaction, has sharply increased in recent years due to the expansion of international trade and the promotion of international investments.

An active source of cross-border tax arbitrage involves the use of hybrid mismatch arrangements, which can be defined as tax structures designed to exploit asymmetries in the tax treatment of hybrid financial instruments, hybrid entities, and hybrid transfers in different jurisdictions, with the goal of obtaining double deductions, deduction with non-inclusion or foreign tax credits. Recently, hybrid mismatch arrangements have become an extremely sensitive political issue, es...