Government of Canada releases draft legislative proposals to address “hybrid mismatch arrangement” tax avoidance schemes 

News release

April 29, 2022 - Ottawa, Ontario - Department of Finance Canada

Today, the Department of Finance released draft legislative proposals that would address hybrid mismatch arrangements, which are used primarily by multinational enterprises to avoid paying their fair share of tax, as committed to in Budget 2021.

Hybrid mismatch arrangements are cross-border tax avoidance arrangements that exploit differences in the income tax treatment of business entities or financial instruments between two or more countries. These mismatches can result in “double non-taxation”, which occurs when income is not subject to tax in any jurisdiction. This can significantly reduce overall tax paid and decrease tax revenues.

These schemes erode the tax base that supports programs and services for Canadians, and provide an unfair advantage to multinational enterprises over Canadian businesses, particularly small and medium-sized businesses.

To address this, the draft legislative proposals are intended to implement, and be generally consistent with, the recommendations in the Action 2 Report of the Organization for Economic Cooperation and Development (OECD)/G20 Base Erosion and Profit Shifting (BEPS) project, on “Neutralizing the Effects of Hybrid Mismatch Arrangements”, with appropriate adaptations to the Canadian income tax context. These proposals will level the playing field and help ensure that multinational corporations pay their fair share.

Canadians are invited to provide feedback on these draft proposals by sending their comments to by June 30, 2022.

Quick facts

  • Consistent with the Budget 2021 announcement, these draft legislative proposals are the first of two separate legislative packages that would implement the recommendations of the Action 2 Report

  • This first package would implement recommendations in Chapters 1 and 2 of the Action 2 Report, generally covering hybrid financial instruments. These proposals would apply as of July 1, 2022. 

  • The second legislative package, implementing the remaining recommendations (to the extent relevant in the Canadian context), will be released for stakeholder comment at a later date and would apply no earlier than 2023. 

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