Canadian multinationals (MNEs) should determine whether their cross-border tax structures may be affected by Finance’s second package of hybrid mismatch proposals. Whereas the first package of hybrid mismatch rules generally applied to hybrid mismatches arising from hybrid instruments, the new proposals that Finance released on January 29, 2026 expand the rules to apply to reverse hybrid arrangements, disregarded payment arrangements, hybrid payer arrangements and imported arrangements. Together, these packages of rules implement in Canada the recommendations in the Organization for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Action 2 report. These new hybrid mismatch rules may affect corporations, trusts, individuals and partnerships that make or receive cross-border payments. Finance has indicated that it will accept comments on these draft legislative proposals by February 27, 2026.
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