Hybrid entities and the EU direct tax directives

Conflicts due to the autonomous methods used by Member States for the tax classification of companies or partnerships established under the private law of other Member States can give rise to ‘hybrid’ entities and lead to double taxation or double non-taxation. As a consequence, market participants in the EU internal market are sometimes confronted with negative effects on cross-border activities or with incentives to use such mismatches in tax planning structures. Given major progress in this area at both the EU and the OECD, the time is right to formalize a truly comprehensive solution to this persistent problem.
This detailed analysis, ranging from specific national law developments to solidly grounded recommendations, offers unprecedented guidance on the way forward. The book opens with a general background describing the EU framework and concludes with a comparative analysis incorporating concrete recommendations. The main body consists of reports by local experts from eight Member States – Austria, Belgium, Denmark, France, Germany, Italy, Luxembourg, and the Netherlands. Each country report discusses the national system for classifying foreign entities and how the specific country applies the interwoven impacts of the following factors on issues relating to hybrid entities:

- Primary EU law and relevant case law of the ECJ;
- EU Parent-Subsidiary Directive;
- EU Merger Directive;
- EU Interest and Royalty Directive;
- OECD tax treaty approach to hybrid entities;

The final recommendations include ‘linking rules’ that serve to align Member States’ direct tax systems with stringent entity classifications and allocation of income, effectively neutralizing the effects of hybrid mismatches. This is the first full-length book to deal with how hybrid entities should be treated under the EU direct tax directives. It will be welcomed by tax practitioners advising multinationals, and will also be of great value to academics and government officials in any country dealing with EU or Member State tax law.