The underlying cause of the problems of BEPS is the ‘separate entity’ principle in tax treaties. This incentivises multinational corporate groups to develop complex structures using entities in suitable jurisdictions to hold assets and route payment flows in ways which minimise their overall global tax exposure. Many of the proposals now being developed in the Action Plan will result in the elaboration of complex rules attempting to deal with different aspects of the problem. The response of tax planners will undoubtedly be to devise increasingly complex structures aiming to avoid those rules. Tax rules, like any regulatory arrangements, can only be effective on a sustainable basis if they work with the grain of the economic motivations of the persons whose conduct is being regulated, and not against it. This is especially important for finance, since multinational corporate groups decide centrally on how to raise capital on global capital markets, while devising complex structures internally for the allocation and management of their funds using intermediary entities. The use of hybrid entities and instruments are amongst these techniques. In our view, the proposals which were put forward in the discussion draft, while elegant and astute, were also complex and would require careful coordination. As was clear from the consultation, they were over-inclusive in applying also to unrelated parties, yet related parties in multinational groups would be able to devise new techniques to avoid them, as has been the experience in countries which already have adopted similar approaches. In our view, a better approach would be to treat group debt on a consolidated basis and apportion it among the operating entities. This would deal with both HMAs and other Action Plan points such as interest deductibility, the use of conduits and transfer pricing of debt. It would also be simpler and easier to administer, which is especially important for tax administrations lacking expertise, such as those in developing countries.