In the framework of the OECD’s BEPS project, seven “deliverables” were released on September 16^th, 2014, one of them dealing with “action 2” of the BEPS project relating to the effects of hybrid mismatch arrangements. Part II of that report contains recommendations on treaty issues and proposes a new provision on hybrid entities to be added as paragraph 2 in Article 1 of the OECD MC. Although the draft commentary on that new rule confirms full compatibility with the OECD Partnership Report and clarifies that there is no intention to affect domestic law (of which the income allocation rules are a substantial part), the new provision contains a mandatory income allocation rule, which may be of concern for source countries that follow the transparency concept. It will be important for Austria closely to observe the further development in this context. Should the new provision force source countries to disregard their domestic income allocation rules in cases of third-country partners of a hybrid entity and to grant source tax relief in such cases, the current treatment of foreign investment funds would be heavily affected in Austria. This might terminate the current reciprocal treatme...