Targeting Tax

Patrick Marley

March 2014

Sheldon Gordon, Lexpert Magazine


Hybrid Mismatch Arrangements

An entity may be viewed as a corporation in one jurisdiction and as a partnership in another. ... These discrepancies can result in arbitrage opportunities such as double non-taxation, double deduction or long-term deferral of taxation of hybrid instruments and entities. The OECD wants to thwart these potential effects through changes both to multilateral tax treaties and domestic law.

“There could be broad implications [for Canada] but the degree is not yet clear, says Patrick Marley. Canada has previously addressed hybrid mismatch arrangements through changes to its bilateral tax treaty with the US (especially article IV(7), which denies treaty benefits to certain hybrid entities).

If the outcome of the Action Plan is to introduce rules like we have in article IV(7) of the bilateral treaty,” says Marley, “there would not likely be much impact on Canada in that US is our major trading partner and we already have a rule in that treaty.

On the other hand, if the recommendation is that all countries should come to a common view on the character of entities or instruments, then that could have a huge impact around the world,” he says.

But this seems unlikely, says Marley, as the OECD respects the differences in how countries craft their domestic laws. This means Canada would address hybrid arrangements in ways that it has already done.

Automatic Tax Data Exchange

One of OECD’s initiatives that is most likely to affect Canada and other countries is ... the proposed automatic exchange of taxpayer information among tax authorities. “The implications for Canadian taxpayers include potential loss of privacy and the risk of misappropriation of tax data,” says Marley. “The taxpayer’s information is protected only to the extent of the weakest link in the weakest country.”

To read the entire article, subscribers can click here.The article is also available in the print version of Lexpert Magazine, March 2014