Tax Avoidance Using Hybrid Financial Instruments

Kurzfassung/Abstract

Multinational companies can use hybrid financial instruments to reduce their tax burden. To achieve such a reduction corporations can exploit the differences in the national tax laws between countries. By evaluating the rules governing demarcation between equity and debt in Germany, France, the UK, the Netherlands, and Luxembourg, the author finds that there are various qualification conflicts which give rise to tax avoidance opportunities in these countries. The implementation of linking rules, a central anti-avoidance mechanism recommended by the OECD, has reduced the revealed tax avoidance opportunities over time. Considering ATAD I and ATAD II, the author analyses former, current, and future tax avoidance opportunities resulting from the use of HFIs.