Otterspeer Haasnoot & Partners' comments to BEPS Action 2: neutralize hybrid mismatch arrangements

Our key comment is that the fundamental solution to abusive hma’s should be found in consistent and correct application of the at arm’s length principle as set out in the OECD Model Convention, and the OECD’s own transfer pricing guidelines, in conjunction with the application of the OECD’s exchange of information standard. In the presence of adequate exchange of information, the arm’s length principle provides tax administrations all the necessary instruments to correct undesirable tax consequences of hma’s. If, in spite of exchange of information and the at arm’s length principle, the source country chooses to allow a deduction for payments on an hmi, this should be assumed a conscious decision by the source country based on its national sovereign tax policy. Requiring the residence country of the investor to tax payments on an hmi in such cases would violate the generally and internationally accepted, fundamental principle of territoriality. In other words, the OECD has already provided for the full array of measures to adequately counter abusive hma’s. It is up to the member states to make full and appropriate use of these measures. Read more in the below attachment.