Hybrid mismatch rules in Luxembourg: Analysing the impact on Alternative Investments (Private Equity, Real Estate, …)
Hybrid mismatches typically originate from a different tax treatment of an entity, a permanent establishment or a financial instrument under the laws of two or more jurisdictions and may result in deduction without inclusion or double deduction outcomes. In general, the hybrid mismatch rules target hybrid mismatches between associated enterprises, structured arrangements between third parties, imported hybrid mismatches and tax residency mismatches.
At the same time, the hybrid mismatch rules should not create economic double taxation. This is ensured through a number of carve-outs and limitations that discharge the application of the hybrid mismatch rules (for example, timing differences, inclusion of the payment at the level of any payee, tax exempt status of the investor, transfer pricing adjustments).
The hybrid mismatch rules are characterised by an extreme complexity that demands not only deep knowledge of Luxembourg tax law but also a good understanding of the tax laws of all foreign jurisdictions involved, ATAD 2 and the Final Report on BEPS Action 2 which is explicitly mentioned as a source of interpretation.
This briefing aims at providing participants with a clear overview of the new hybrid mismatch rules, analysing how these rules may impact Alternative Investments and multinational groups in Luxembourg and considering opportunities to manage the impact of the hybrid mismatch rules.
2. Typical investment structures
3. Impact of the hybrid mismatch rules on investments
4. Related party test (associated enterprises, acting together and de minimis rule)
5. Considerations regarding Luxembourg and foreign funds
6. Solutions for managing the impact of the hybrid mismatch rules
7. Limits of the hybrid mismatch rules
8. How to deal with the hybrid mismatch rules in practice
9. Considering potential imported hybrid mismatches in the EU investment jurisdictions
10. Practical case studies
11. The reverse hybrid mismatch rule (as from fiscal year 2022)
Oliver R. Hoor is a Partner in the International and Corporate Tax department of ATOZ. A tax professional since 2003, Oliver has experience in Luxembourg and international taxation with a focus on alternative Investments (private equity, real estate, sovereign wealth funds, hedge funds), mergers & acquisitions and multinational groups. Oliver advises clients on all direct tax aspects regarding deal structuring, maintenance, reorganisations and exit planning. He is Head of Transfer Pricing and the German Desk.
La société Legitech a obtenu l’agrément du Barreau de Luxembourg.
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