New EU Anti-Hybrid Rules Target "Third Countries" | KPMG | CA
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New EU Anti-Hybrid Rules Target "Third Countries"

New EU Anti-Hybrid Rules Target "Third Countries"

The EU has unanimously adopted an amended directive.


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The EU's new hybrid mismatch directive will prevent tax avoidance through hybrid mismatches. It amends article 9 of the EU Anti-Tax-Avoidance Directive so that it now covers hybrid mismatches between EU member states and third countries as well as hybrid mismatches between EU member states. A hybrid mismatch arrangement is a cross-border arrangement that generally uses a hybrid entity or hybrid instrument and results in a mismatch in the tax treatment of a payment across jurisdictions.

The final text of this amended directive does not contain any substantial changes from the text that EU member states had agreed on in February this year. The adopted directive includes a carve-out option until December 31, 2022 for hybrid regulatory capital in the banking sector and a carve-out for financial trades involving certain hybrid transfers.

The new directive covers:

  • Mismatches between 
    • Associated enterprises (as defined in the new directive) 
    • Head offices and permanent establishments 
    • Permanent establishments of the same entity 
  • Mismatches under a structured arrangement 
  • Several types of hybrid mismatches, including 
    • Financial instrument mismatches 
    • Hybrid entity mismatches 
    • Reverse hybrid mismatches 
    • Permanent establishment mismatches 
    • Tax residency mismatches 
    • Imported mismatches.

EU member states must change their domestic laws to implement Article 9 of the July 2016 EU Anti-Tax-Avoidance Directive by December 31, 2019. The rules must apply, starting January 1, 2020 (with an exception for reverse hybrids). The part of the directive dealing with reverse hybrids will only have to be implemented by December 31, 2021 and applied from January 1, 2022.

For more information, contact your KPMG adviser.

Information is current to June 20, 2017. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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