Hybrid and other mismatches
Produced in partnership with Jeanette Zaman of Slaughter and May
Hybrid and other mismatches

The following Tax guidance note Produced in partnership with Jeanette Zaman of Slaughter and May provides comprehensive and up to date legal information covering:

  • Hybrid and other mismatches
  • Structure of this Practice Note
  • Legislation and guidance
  • Clearances from HMRC
  • Commencement
  • Interaction between hybrid rules and other UK tax rules
  • Priority between UK hybrid rules
  • Chapter 3: Hybrid mismatches from financial instruments
  • Chapter 3: Hybrid mismatch definition and extent of mismatch
  • Counteraction under chapter 3
  • more

This Practice Note outlines the UK rules (referred to in this Practice Note as the hybrid rules) that counteract, for corporation tax purposes, hybrid and other mismatches. These mismatches ‘exploit differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions to achieve double non-taxation, including long-term deferral’. Although the hybrid rules are stated to be based on the recommendations of the Organisation for Economic Cooperation and Development (OECD)/G20’s Final Report on BEPS Action 2: Neutralising the Effects of Hybrid Mismatch Arrangements that was published on 5 October 2015 and the OECD’s Report on BEPS Action 2: Neutralising the Effects of Branch Mismatch Arrangements that was published on 27 July 2017 (together, these reports are referred to in this Practice Note as the Action 2 recommendations), HMRC’s guidance at INTM550020 also expressly states that the UK hybrids ‘legislation is deliberately broader in scope than the OECD recommendations in some areas’ meaning that the ‘outcomes…may differ from those under the OECD recommendations’. An example of this is chapter 7 which applies to D/NI mismatches arising because a hybrid payee is not within the charge to tax in any jurisdiction.

With effect from 1 January 2017, the hybrid rules replaced the anti-arbitrage rules.

The hybrid rules target any:

  1. payments under a hybrid mismatch arrangement that are deductible