BEPS Action 2:2014 Deliverable- neutralising the effects of hybrid mismatch arrangements and its compatibility with the non-discrimination provisions in tax treaties and the treaty on the functioning of the European Union

This article illustrates the BEPS proposals to fight against hybrid mismatch arrangements. It concentrates on exemption / non-inclusion schemes and double deduction schemes and analyses whether these proposals are in line with the non-discrimination provisions contained in tax treaties and in the TFEU. The article comes to the conclusion that the proposals generally comply with the non-discrimination provisions. However, with regard to double deduction schemes the OECD proposes to deny a deduction in the permanent establishment state if the payments are also deductible in the head office state. In the author's opinion this recommendation conflicts with the freedom of establishment contained in the TFEU.