Hybrid finance and double taxation treaties

Company finance is traditionally divided into equity and debt, but this does not truly capture the great diversity of the financial instruments available, and hybrid instruments incorporate elements of both equity and debt. From a tax perspective, the classification of hybrid instruments as equity or debt is crucial. This article examines the circumstances in which the yield of a hybrid financial instrument can or must be qualified as either a dividend or interest under tax treaties irrespective of the treatment under the domestic laws of the contracting states.