FILTERS
RESET

France’s 2020 Finance Act, enacted on 28 December 2019, implements into domestic law the 2017/952 EU Anti-Tax Avoidance Directive (ATAD 2) which aims to neutralize the effects of hybrid mismatch arrangements used by companies to limit the taxation of their profits.

The new anti-hybrid rules, which address hybrid mismatch arrangements both within the European Union and with third countries, will have a wide impact on international tax transactions, in particular because of the implementation of the imported hybrid mismatch rule.

Hybrid mismatches exploit differences in the tax treatment of an entity or instrument between two or more countries. Such differences may result in either (i) a deduction of a payment in one jurisdiction without inclusion in taxable profit in the other jurisdiction or (ii) a deduction of the payment in both countries. Depending on the nature of the hybrid mismatch arrangement, the anti-hybrid rules would either disallow the deduction or require the inclusion of the payment in taxable profit.

Most anti-hybrid schemes were already covered by French tax legislation. However, the new imported hybrid mismatch rule requires groups to be particularly aware of their international tax operations.

Under the new Article 205 B III of the French tax code, the imported hybrid mismatch rule applies when the payment meets the following requirements:

  • The payment does not itself give rise to a hybrid mismatch;
  • The payee sets off the payment against a hybrid deduction.

The expense remains deductible if the state of residence of one of the companies concerned has neutralized the effects of the hybrid arrangement. However, where such neutralization is only partial, the deduction will be limited to the amount of the neutralized portion.

The imported mismatch rules could be difficult to apply in certain situations. They require detailed knowledge of all intragroup transactions and of the tax treatment applied in the different jurisdictions. In practice, it will be necessary to check each transaction to ensure that it does not correspond to a hybrid mismatch imported into France.

Contact us
close
*Required fields
close
*Required fields