During past couple of years, the activities of multinational corporations and international tax practitioners were driven to a significant degree by market and competitive forces on the one hand, and constrained by governmental legal actions on the other.

As in recent years, there is every reason to assume that multinational groups will continue to engage in joint ventures as to discrete lines of business. Many joint ventures are part of the trend to divest non-core businesses, because they create a viable entity that can be spun off or sold in an IPO. Multicounty joint ventures between multinational groups from different countries pose significant structural issues that will continue to challenge international tax advisers and their clients.

For reasons that are incomprehensible, the US government also seems to be concerned with international tax arbitrage cross-border hybrid entities, hybrid instruments, or hybrid arrangements that are treated differently by two different tax jurisdictions. The US treasury is concerned, for example, that a hybrid instrument issued to a foreign investor by a foreign subsidiary of a US multinational is viewed as debt for American tax purposes and as equity for overseas tax functions. Because of the treatment of the hybrid instrument as equity for foreign tax purposes, the foreign investor might receive tax credits or an exemption from tax because of the foreign taxes paid by the foreign issuer, while the foreign taxes that underlie the beneficial

treatment of the foreign investor in its home country are claimed as credits by the US parent of the issuer. The US Treasury and IRS seem to be terribly upset that both shareholders receive a home country tax benefit as a result of the taxes paid by the issuer. From the US multinational’s perspective, however, it is merely achieving an inexpensive form of financing because of the tax preference granted in the foreign investor’s home country, while obtaining relief from double taxation in a manner consistent with US tax principles.