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

The following Tax practice 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
  • Summary of legislative changes to the hybrid rules
  • 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
  • Condition A
  • More...

FORTHCOMING CHANGE: HMRC is consulting on changes to the hybrid mismatch rules to ensure that they work proportionately and as intended. Amendments considered include: (i) the double deduction (DD) rules in chapters 9 and 10, along with the application of section 259ID income to address concerns that the DD rules are disproportionate, (ii) the definition of acting together in chapter 14 to address concerns that the definition is too widely drawn and that some taxpayers are unable to obtain the necessary third party information required in order to fully comply with the legislative requirements, and (iii) the fact that the impact of tax exempt investors in hybrid entities can be disproportionate. The consultation closes on 29 August 2020.

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

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