Specific provisions on hybrid mismatches in the post BEPS Hungary

Absztrakt (kivonat)

Since the financial crisis of 2008 we could encounter more often with news articles about the aggressive tax planning of multinational enterprises. Exploiting the loopholes in the international tax law makes them possible to shift their generated profit to low-tax jurisdictions. Besides the public, this practice of MNEs called the attention of the governments as well. Minimizing their tax burden had a substantial impact on the budget of the nations. In consequence, G20 countries entrusted the OECD in 2013 to develop an action plan within the framework of the BEPS project to tackle tax evasion and make sure that the income is taxed where it had been generated. Hybrid mismatches were identified as one of the most important sources of Base Erosion and Profit Shifting (BEPS). Hybrid mismatches exploit the differences in the tax treatment of entities and financial instruments between two or more jurisdictions in order to achieve lower effective taxation on group level. The final report of Action 2 of the BEPS Action plan deals exclusively with hybrid mismatches and incorporates recommendations both on domestic rules and treaty issues to neutralize the effects of such arrangements. Throughout my paper I analyze the current hybrid provisions in the Hungarian tax system and examine the potential effect of the recommended provisions by the OECD on domestic and treaty level. I have chosen this topic for two main reasons. Firstly, the OECD BEPS project has a historical significance in international taxation. We have not seen such a substantial international cooperation against tax avoidance and aggressive tax planning so far. The topic is very actual since the OECD has released the final reports of the BEPS Action plan in October 2015. In many countries, the recommended provisions may be implemented from 2016. Consequently, tax professionals dealing with international taxation are actively following the developments of the BEPS project in the whole world. We also have to be aware of the potential effects of these recommendations on the Hungarian tax system. Due to the fact that BEPS project covers a broad range of taxation topics, I endeavored to elaborate on one of the most significant tax challenges of nowadays: the issue of hybrid mismatches. The second main reason of choosing this topic is that there is no currently available Hungarian literature about the BEPS discussion and its potential effects. I hope my paper will constitute a useful tool to comprehend the potential changes in the Hungarian specific provisions on hybrid mismatches. In the first part of the paper I introduce the Hungarian corporate taxation from hybrid mismatch perspective based on the Act LXXXI of 1996 on Corporate Tax and Dividend Tax and other relevant provisions from other acts. In the beginning of this part I elaborate on the features of the Hungarian tax system, such as the treatment of foreign entities or the taxation of partnerships and corporations. After having the basics discussed, I introduce the two most important Hungarian anti-hybrid rule: the definition of the dividend (against hybrid financial instruments) and a general anti-avoidance rule aimed at hybrid entities. At the end of the first part I illustrate the aforementioned provisions in practice through four different exemplary case studies. The second part of the paper starts with the introduction of the Action plan’s recommendations regarding the OECD Model Tax Convention. I elaborate mainly on the proposed Article 1 (2) provision and the recommended modification concerning Article 4 (3). I have conducted a research on the recently signed Hungarian tax conventions in order to size up the impact of the BEPS discussion on the Hungarian treaty-legislation. Besides the 3 recommendations concerning hybrid mismatches I have also examined other action’s potential effect on the Hungarian tax treaties. After the examination of recent conventions I introduce the Hungarian practice in treaty interpretation and application through several case studies. In the end of this part I deal with the advantages and disadvantages of implementing the outlined recommendations through a multilateral instrument. As Hungary has been member of the European Union for twelve years, it is important to scrutinize the EU-law aspects of the hybrid provisions as well. In the beginning of the last part of my paper I analyze the current Hungarian practice regarding hybrid entities and hybrid financial instruments from EU-law perspective. It was also important to examine the potential effect of the implementation of the proposed provisions. Finally, I conducted an investigation on the impact of the BEPS discussion on directives and EU law concerning direct taxation. I would like to take this opportunity to thank dr. Gergely Czoboly and Gabriella Erdős for their support and useful advices throughout my research. (...)