Canadian multinationals that have inbound or outbound structures should review the proposed hybrid mismatch arrangement rules recently released by Finance. This complex draft tax legislation is intended to neutralize tax benefits associated with hybrid cross-border arrangements that otherwise result in mismatches in the tax treatment of entities or financial instruments across jurisdictions. Generally, these mismatches can result in more than one deduction or a deduction without a corresponding income inclusion for a single economic expense. Finance's draft legislation addresses the treatment of payments under "hybrid financial instrument arrangements", "hybrid transfer arrangements" and "substitute payment arrangements", and also includes new rules to restrict the deduction from taxable income of certain dividends received from foreign affiliates. These proposed hybrid mismatch arrangement rules will generally apply to payments that arise on or after July 1, 2022, including payments under arrangements entered into before that date.
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