The tax treatment of hybrid entities in the European Union : an analysis

Abstract

Purpose: The objective of this dissertation is to analyse the tax impact of ATAD 2 on hybrid entities, delve into the repercussions caused by ATAD 2 and evaluate the impact on Maltese taxpayers. Design: The research was carried out using semi-structured interviews to gather the views of the participants who are well versed with ATAD 2. Findings: The findings established that the hybrid entity rules of ATAD 2 are subject to a lot of interpretation and may lead to double taxation, in contrast to what ATAD is trying to achieve, being to mitigate non-compliance with tax legislation. Double taxation mainly arises due to the different interpretation of definitions within ATAD 2 and the timing difference between a deduction of a payment and the corresponding inclusion. There are also possible overlaps between hybrid entity rules of ATAD 2 and the CFC Rule and Interest Limitation Rule of ATAD, which can lead to further double taxation. Conclusions: The study concludes that due to the possible double taxation outcomes with the implementation of ATAD 2 hybrid entity rules, tax professionals and investors need to reassess the current cross border business structures and payments made between associated enterprises. This is to ensure that any payments which can result in a hybrid mismatch, should be avoided since the final tax liability can be that of double taxation. Value: The dissertation is intended to provide its users with an understanding of the applicability of ATAD 2 on structures falling within the purport of hybrid entities and the possible repercussions caused by ATAD 2.