The hybrid financial instruments : the effects of the OECD BEPS Action 2 report and the ATAD

This contribution critically assesses the complex hybrid mismatch rule concerning financial instruments as developed under the OECD BEPS action 2-proposal and subsequently implemented in the Anti-Tax Avoidance Directive (ATAD). Both approaches are compared, starting with a profound analysis of the OECD initiative. Given their obligation to implement the European initiative in domestic tax law by 1 January 2020, domestic legislators now have to deal with the exact meaning of the Directive. However, the ambiguous text incites uncertainties and will definitely raise incoherencies between the several EU-Member States. Both international initiatives clearly rather aim to counter tax avoidance, instead of creating coherencies: only double non-taxation is envisaged and the taxpayer is confronted with a rather technical, hierarchical set of rules increasing his tax burden, because of an objective incoherent outcome. The solution is hardly inspired by the fundamental idea of BEPS to tax income where it has been generated. Given this rather mechanical approach the question is finally raised whether restrictions on the freedom of establishment and the free movement of capital can be justified. However, as this article focuses on the task for domestic legislators, this ultimate question has not been substantially investigated