Skip to content

CA Final · Direct Tax Laws & International Taxation · Fundamentals of BEPS

Kaveri Textiles Ltd, resident in India, pays interest to its associated enterprise abroad. The group wants to arrange a structure in which the payment is deductible in India while the receipt is not taxed in the recipient's country because of a hybrid instrument. Which BEPS Action specifically addresses such deduction/non-inclusion outcomes arising from hybrid mismatch arrangements?

Action 2 is correct. It aims to neutralise hybrid mismatch arrangements, where differing treatment of an instrument or entity in two countries produces a deduction in one and no inclusion in the other. Action 5 deals with harmful tax practices, so it does not address this situation.

  1. AAction 2Correct
  2. BAction 5
  3. CAction 7
  4. DAction 12

Explanation

Action 2 deals with neutralising the effects of hybrid mismatch arrangements, including deduction/non-inclusion and double deduction outcomes. Action 5 is wrong because it concerns harmful tax practices and substance requirements for preferential regimes, not hybrid instruments.

Did you get it right without looking?

One question tells you little. A timed set on Fundamentals of BEPS shows your real accuracy, how long you take and where you lose marks.

Practise Fundamentals of BEPSFree diagnostic mock

More Fundamentals of BEPS questions