During our tax webinar on 15 April we discussed certain tax aspects of so-called hybrid entities. Part of this webinar were below videos which zoom in on (i) hybrid mismatches in relation to the ambiguous definition of ‘acting together’ as included in the Dutch conditional withholding tax on interest and royalty payments and referred to by the imported mismatch rule (ATAD2) (clip 1), and (ii) the proposed reverse hybrid mismatch rule (clip 2).
Clip 1: The Dutch conditional withholding tax on interest and royalties and the Imported mismatch rule
The Dutch conditional withholding tax on interest and royalty payments may be triggered by (i) payments to related entities that are located in low-taxed jurisdictions, (ii) in abusive situations (e.g. an indirect payment to a low-taxed jurisdiction via a conduit company) and by (iii) payments to hybrid entities. In light of payments to hybrid entities, the presence of entities ‘acting together’ may cause far-reaching and arguably disproportionate consequences.
In light of the imported mismatch (ATAD2) the clip also illustrates the potentially unforeseeable consequences of the varying definitions of ‘acting together’ within the EU.
Click here to watch clip 1.
Clip 2: The Reverse hybrid mismatch rule
The second topic discussed during the webinar was the proposed reverse hybrid mismatch rule (suggested to be effective as of 1 January 2022). ‘Regular’ hybrid mismatch rules target the effect of the mismatch by e.g. limitation of deduction, whereas the reverse hybrid mismatch rules target the cause of the mismatch i.e. discrepancy in qualification of the entity.
The reverse hybrid mismatch rule would be applicable to entities qualifying as transparent from a Dutch tax perspective, and non-transparent in the other tax jurisdiction. Under the reverse hybrid mismatch rule the transparent entity would be deemed non-transparent – and therefore taxable – for Dutch tax purposes.
Click here to watch clip 2.
We hope you found our animations helpful, but please do feel free to get in touch if you would like to further discuss the topics touched upon in our webinar.