The ability to arbitrage the differences between international tax systems is a very important aspect of international tax planning. Imagine you are an international tax advisor providing tax-planning advice to a client with operations in different international tax jurisdictions.

(1) Propose one arbitrage transaction to the client using hybrid entities and one using a source of income that will reduce the tax liability of the client.

(2) Recommend a defense on each transaction where the IRS pursues the business purpose or economic substance to reject the arbitrage transactions