Anti-base erosion profit shifting (BEPS) measures
Anti-hybrid rules
The anti-hybrid rules are intended to counteract mismatches which arise due to the interaction of two or more corporate tax systems. These mismatches can be exploited to avoid tax.
A mismatch occurs due to differences in the legal characterisation of a financial instrument or entity which results in hybridity. This can lead to tax advantages known as hybrid mismatch outcomes.
For example, the same item of expenditure could be tax deductible in more than one territory. Alternatively, a payment could be tax deductible in one territory without a corresponding amount being taxable in the recipient jurisdiction.
The anti-hybrid rules address these hybrid mismatch outcomes by either denying a tax deduction or by bringing income within the charge to tax.
The anti-hybrid rules contained in Chapters 1 to 10 of Part 35C apply to all corporate taxpayers. There is no lower limit or threshold below which the rules do not relate. The rules apply to all payments made after 1 January 2020.
The reverse hybrid rule contained in Chapter 10A of Part 35C applies to entities which are treated as tax transparent in Ireland. The rule applies to tax periods commencing on, or after, 1 January 2022.
The rules are complex. This is because they apply to cross-border transactions and require consideration of the tax treatment of transactions and entities in other territories.
The Anti-Tax Avoidance Directive 2 (ATAD2) states that:
“Member States should use the applicable explanations and examples in the OECD BEPS report on Action 2 as a source of illustration or interpretation to the extent that they are consistent with the provisions of the Directive and with Union Law.”
It is recommended that entities, when considering the application of the anti-hybrid rules, refer to the explanations and examples in both the:
For further information, please refer to Tax and Duty Manual Part 35C-00-01- Guidance on the anti-hybrid rules.
Note
Part 35C of the Taxes Consolidations Act 1997, implements the Anti-Tax-Avoidance Directives (ATAD) by introducing anti-hybrid rules. Specifically, Council Directive (EU) 2017/952 of 29 May 2017 (ATAD2) amending Directive (EU) 2016/1164 (ATAD).
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