Base erosion and profit shifting

BEPS: Neutralising the tax effects of branch mismatch arrangements


27/07/2017 - Today, the OECD released a report on Neutralising the Effects of Branch Mismatch Arrangements (BEPS Action 2).


In October 2015, as part of the final BEPS package, the OECD/G20 published a report on Neutralising the Effects of Hybrid Mismatch Arrangements (OECD, 2015). This report set out recommendations for domestic rules that put an end to the use of hybrid entities to generate multiple deductions for a single expense or deductions without corresponding taxation of the same payment. While the 2015 Report addresses mismatches that are a result of differences in the tax treatment or characterisation of hybrid entities, it did not directly consider similar issues that can arise through the use of branch structures. These branch mismatches occur where two jurisdictions take a different view as to the existence of, or the allocation of income or expenditure between, the branch in head office of the same taxpayer. These differences can produce the same kind of mismatches that are targeted by the 2015 Report thereby raising the same issues in terms of competition, transparency, efficiency and fairness. Accordingly, this new report sets out recommendations for changes to domestic law that would bring the treatment of these branch mismatch structures into line with outcomes described in the 2015 Report.


Addressing base erosion and profit shifting is a key priority of governments around the globe. In 2013, OECD and G20 countries, working together on an equal footing, adopted a 15-point Action Plan to address BEPS. In 2015, the BEPS package of measures was endorsed by G20 Leaders and the OECD. In order to ensure the effective and consistent implementation of the BEPS measures, the Inclusive Framework on BEPS was established in 2016 and already has 102 members. It brings together all interested countries and jurisdictions on an equal footing at the OECD Committee on Fiscal Affairs.


Find out more about the Inclusive Framework on BEPS:


Media queries should be directed to Pascal Saint-Amans, Director of the OECD Centre for Tax Policy and Administration (+33 6 26 30 49 23) or Achim Pross, Head of the International Co-operation and Tax Administration Division (+33 6 21 63 27 67).


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