Legislation Against Tax Arbitrage With Hybrid Instruments

Hybrid instruments are used in the tax structuring of, in particular, intra group financing transactions with the intention to generate a double dip in the jurisdiction of the corporation providing the financing and the jurisdiction of the financed corporation. A provision under Austrian tax law was introduced to prevent such structures. However, under certain circumstances, this provision may also trigger an Austrian tax liability in situations that do not involve a hybrid instrument.

Double dip under hybrid instruments

Instruments that are treated as equity in one jurisdiction and debt in another jurisdiction (hybrid instruments) may be used for tax arbitrage in cross-border financing transactions. For example, an instrument may be treated as debt financing in the non-Austrian jurisdiction where the financed corporation is resident, but as equity from the perspective of the Austrian corporation acting as the financing corporation. The intended qualification for