contents table Logo Lexparency.org lexp
Laying down rules against tax avoidance practices that directly affect the functioning of the internal market
Article 9

Article 9 — Hybrid mismatches

  1. To the extent that a hybrid mismatch results in a double deduction:
    1. the deduction shall be denied in the Member State that is the investor jurisdiction; and
    2. where the deduction is not denied in the investor jurisdiction, the deduction shall be denied in the Member State that is the payer jurisdiction.

    Nevertheless, any such deduction shall be eligible to be set off against dual inclusion income whether arising in a current or subsequent tax period.

  2. To the extent that a hybrid mismatch results in a deduction without inclusion:
    1. the deduction shall be denied in the Member State that is the payer jurisdiction; and
    2. where the deduction is not denied in the payer jurisdiction, the amount of the payment that would otherwise give rise to a mismatch outcome shall be included in income in the Member State that is the payee jurisdiction.
  3. A Member State shall deny a deduction for any payment by a taxpayer to the extent that such payment directly or indirectly funds deductible expenditure giving rise to a hybrid mismatch through a transaction or series of transactions between associated enterprises or entered into as part of a structured arrangement except to the extent that one of the jurisdictions involved in the transaction or series of transactions has made an equivalent adjustment in respect of such hybrid mismatch.
  4. A Member State may exclude from the scope of:
    1. point (b) of paragraph 2 of this Article hybrid mismatches as defined in points (b), (c), (d) or (f) of the first subparagraph of Article 2(9);
    2. points (a) and (b) of paragraph 2 of this Article hybrid mismatches resulting from a payment of interest under a financial instrument to an associated enterprise where:
      1. the financial instrument has conversion, bail-in or write down features;
      2. the financial instrument has been issued with the sole purpose of satisfying loss absorbing capacity requirements applicable to the banking sector and the financial instrument is recognised as such in the taxpayer's loss absorbing capacity requirements;
      3. the financial instrument has been issued
        • in connection with financial instruments with conversion, bail-in or write down features at the level of a parent undertaking,
        • at a level necessary to satisfy applicable loss absorbing capacity requirements,
        • not as part of a structured arrangement; and
      4. the overall net deduction for the consolidated group under the arrangement does not exceed the amount that it would have been had the taxpayer issued such financial instrument directly to the market.

      Point (b) shall apply until 31 December 2022.

  5. To the extent that a hybrid mismatch involves disregarded permanent establishment income which is not subject to tax in the Member State in which the taxpayer is resident for tax purposes, that Member State shall require the taxpayer to include the income that would otherwise be attributed to the disregarded permanent establishment. This applies unless the Member State is required to exempt the income under a double taxation treaty entered into by the Member State with a third country.
  6. To the extent that a hybrid transfer is designed to produce a relief for tax withheld at source on a payment derived from a transferred financial instrument to more than one of the parties involved, the Member State of the taxpayer shall limit the benefit of such relief in proportion to the net taxable income regarding such payment.