This comprehensive article addresses the regulatory and tax issues associated with the issuance of Tier 1 capital instruments in a cross-border context, focusing on the tax implications of certain structures devised in Italy. Topics addressed include why and how Tier 1 instruments came into existence, with particular reference to the Basel Accords, as well as the tax classification of hybrid instruments eligible for Tier 1 capital treatment, with specific regard to the distinction between debt and equity. Also analysed is how these hybrids fit into the definition of dividends and interest under Arts. 10 and 11 of the OECD Model Convention.