On 22 August 2016, the Organisation for Economic Co-operation and Development (OECD) published a discussion document on proposed branch mismatch rules, as part of its ongoing work on the base erosion and profit shifting (BEPS) project Action 2 (hybrid mismatches).

The document focuses on possible mismatches caused by international differences in (i) the characterisation of branches (permanent establishments), and (ii) the allocation of income between a branch and its head office.

As far as the UK is concerned, the hybrid mismatch rules introduced by Finance Act 2016 and due to take effect from 1 January 2017 already extend to permanent establishments. The OECD’s further work in this area is therefore likely to have limited impact in the UK.

The discussion document can be viewed here.