Hybrid entities and DTA relief : India and New Zealand approach

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Summary: This article investigates whether the application of the New Zealand-India tax treaty to each country's most recent hybrid entity - a limited partnership (LP) in New Zealand and a limited liability partnership (LLP) in India - results in double taxation or double non-taxation. The article shows that, as evidenced by OECD Commentary, the existing treaty provisions ordinarily resolve the hybrid entity double taxation or double non-taxation. The article indicates that the treatment of foreign LPs / LLPs is complex for both taxpayers and tax administrators. A foreign LP / LLP could qualify as either a company, a firm, or even as an association of persons under domestic law. Further, current foreign tax credit rules do not provide definitive guidance in relation to taxation of a foreign LLP established in India with Indian resident partners. The same applies for an Indian LLP established in New Zealand with New Zealand resident partners. The article concludes that to encourage foreign investment in LPs / LLPs, countries should adopt domestic legislation designed to neutralize a mismatch. Undoubtedly, the OECD multilateral instrument (Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS) (MLI), conceptualized as part of the BEPS project, gives effect to the recommendations in Action 2 (Neutralizing the Effects of Hybrid Mismatch Arrangements), which if adopted, will substantially resolve this issue

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Summary: This article investigates whether the application of the New Zealand-India tax treaty to each country's most recent hybrid entity - a limited partnership (LP) in New Zealand and a limited liability partnership (LLP) in India - results in double taxation or double non-taxation. The article shows that, as evidenced by OECD Commentary, the existing treaty provisions ordinarily resolve the hybrid entity double taxation or double non-taxation. The article indicates that the treatment of foreign LPs / LLPs is complex for both taxpayers and tax administrators. A foreign LP / LLP could qualify as either a company, a firm, or even as an association of persons under domestic law. Further, current foreign tax credit rules do not provide definitive guidance in relation to taxation of a foreign LLP established in India with Indian resident partners. The same applies for an Indian LLP established in New Zealand with New Zealand resident partners. The article concludes that to encourage foreign investment in LPs / LLPs, countries should adopt domestic legislation designed to neutralize a mismatch. Undoubtedly, the OECD multilateral instrument (Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS) (MLI), conceptualized as part of the BEPS project, gives effect to the recommendations in Action 2 (Neutralizing the Effects of Hybrid Mismatch Arrangements), which if adopted, will substantially resolve this issue

Citation source: In: Journal of international taxation. - New York. - Vol. 30 (2019), no. 5 ; p. 49-63

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