On October 25, 2016, the European Commission (EC) published a council directive proposal to neutralize hybrid mismatch structures involving third countries (non-EU countries). This directive was published as an extension of the EU Anti-Tax Avoidance Directive (ATAD) agreement that was reached on June 20, 2016 and will extend the scope to the following:
- Hybrid transfers;
- Hybrid permanent establishment mismatches;
- Imported mismatches; and
- Dual resident mismatches.
According to the proposal, EU member states are required to resolve hybrid mismatch structures involving third countries through the denial of deduction of payments, limitation of tax relief at source, or inclusion of income that would otherwise not be taxed.
The proposals need to be approved unanimously by all member states with the aim for member states to incorporate these rules on the same implementation date as the anti-hybrid rules of the ATAD, which is December 31, 2017.