Hybrid Mismatch arrangments consist of an international corporate structure utilising a tax loophole created by the diversity of Corporation Tax rules in different countries. Technically a practice of tax optimisation, after BEPS, we do not believe there is space for such practices anymore.
In reality, the hybrid mismatch is just the result of a corporate tax shopping exercise to find a suitable jurisdictional arrangement involving 2 or more countries to reduce substantially the international group’s tax exposure.
The Proposal for a Council Directive amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries is an initiative of the EU to neutralise hybrid mismatches by including the structures utilising non-EU countries.
The ATAD II, therefore, is the latest proposal from the ECOFIN of the EU Council, issued after the Malta 21/2/17 meeting, to target non-EU countries in the implementation of Council Directive 2016/1164 (ATAD I). At the Council meeting, State members such as Ireland, Sweden, Denmark, Netherlands, Malta, Luxembourg and the United Kingdom, the countries most likely to be affected by the new regulations, proposed to delay some specific provisions that will enter into force by 2022.
This new proposal represents the EU’s final frontier to secure ‘anti-avoidance’ mechanisms to prevent corporate groups from taking advantage of tax jurisdictional shopping. The discussion, very much aligned with the finalisation of the list of non-cooperative jurisdictions, is based on the provisions of the ‘Code of Conduct’ group set up by the Council in 1998.
There is still a long way to making BEPS a reality and no doubts that the European Union and the members’ states seem to be very active in legislation as well as in prosecution. The Panama Papers and the investigations into Apple, Google or Amazon, all of them being widely reported by media, send a clear message to international corporations.
These necessary, although very slow, steps require unanimity within the European institutions, and that takes time. However, they represent a warrant both for citizens and States that something is being done to fight international tax fraud.
We still believe that an efficient system must include regulatory and legislative measures coupled with the adoption of universal jurisdiction principles applied to serious fraud.