EU Parliament votes to prevent hybrid mismatches with third countries


By Alistair M. Nevius

The EU Parliament voted Thursday to amend the EU's anti-tax-avoidance directive to prevent multinational corporations from using differences between the tax rules of the EU and third countries to deduct the same expenses twice or to deduct an expense in one country without recognising income in the other country. The legislative resolution was approved by a vote of 591–36, with 12 abstentions.

The resolution would amend EU Directive 2016/1164 on hybrid mismatches among EU member states to include hybrid mismatches with third countries where at least one of the parties involved is a corporate taxpayer in an EU member state. The resolution also calls for a framework that is "consistent with, and no less effective than" the Organisation for Economic Co-operation and Development's report on hybrid mismatch arrangements.

To prevent double deductions, the resolution requires that:

To the extent that a payment by a taxpayer to an entity in a third country is set off directly or indirectly against a payment, expenses or losses which due to a hybrid mismatch are deductible in two different jurisdictions outside the Union, the Member State of the taxpayer shall deny the deduction of the payment by the taxpayer in a third country from the taxable base, unless one of the third countries involved has already denied the deduction of the payment, expenses or losses that would be deductible in two different jurisdictions.

To prevent deductions without income inclusion, the resolution requires that:

To the extent that the corresponding inclusion of a deductible payment by a taxpayer in a third country is set off directly or indirectly against a payment which due to a hybrid mismatch is not included by the payee in its taxable base, the Member State of the taxpayer shall deny the deduction of the payment by the taxpayer in a third country from the taxable base, unless one of the third countries involved has already denied the deduction of the non-included payment.

The resolution now goes to the EU Council for approval.

Alistair Nevius (Alistair.Nevius@aicpa-cima.com) is CGMA Magazine's editor-in-chief, tax.