The UK’s rules on hybrid and other mismatches (referred to in this Practice Note as the hybrid rules) have applied since 1 January 2017 and aim to counteract tax mismatches that arise from the way in which a hybrid instrument or a hybrid entity is treated for tax purposes. Although the hybrid rules normally apply to cross-border transactions involving two or more jurisdictions, they can also apply to purely UK domestic transactions. Specifically, the hybrid rules target:

1. •

   deduction/non-inclusion mismatches (D/NI mismatches), ie where a payment under a hybrid mismatch arrangement is deductible in the payer jurisdiction for tax purposes but not included in the taxable income of a payee or a related party investor, and

2. •

   double deduction cases (DD cases), ie where a payment under a hybrid mismatch arrangement gives rise to more than one tax deduction

The hybrid rules deal with different categories of D/NI mismatches and DD cases in separate chapters. In each case, the relevant hybrid rules only apply if the relevant conditions have been satisfied.

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