Hybrid Finance in the Double Tax Treaties

Martin Six

Publication: Working/Discussion PaperWU Working Paper

Abstract

The compartmentalisation of company finance into equity and debt does not truly capture the enormous diversity of financial instruments available. A wide variety of hybrid instruments incorporate elements of both equity and debt. From a fiscal point of view the classification of such hybrid instruments as equity or debt is crucial for two reasons. First of all, the issuer can treat interest on the latter as tax-deductible in most cases, and secondly, for the investor the classification determines whether the payments received from the respective instrument is treated as a dividend or as interest. One important question in this context is how hybrid instruments are treated in the tax treaty between the source state and the residence state. It is the aim of this paper, to show how the yield on hybrid financial instruments can or must be qualified as either dividend or interest in the double tax treaties, irrespective of the treatment in contracting states.
Original languageEnglish
Place of PublicationVienna
PublisherSFB International Tax Coordination, WU Vienna University of Economics and Business
Publication statusPublished - 2007

Publication series

NameDiscussion Papers SFB International Tax Coordination
No.21

WU Working Paper Series

  • Discussion Papers SFB International Tax Coordination

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