Autumn Budget 2017: Corporation tax: Amendments to the Hybrid and Other Mismatches regime

The Hybrid and Other Mismatches rules can be found in Part 6A of Taxation (International and Other Provisions) Act 2010 (TIOPA 2010). These rules came into effect from 1 January 2017 and aim to eliminate tax leakage which has arisen from either double deduction of the same expense or deductions involving a corresponding receipt which has not been subject to tax. The rules were introduced in response to the Base Erosion and Profit Sharing (BEPS) recommendations made by the Organisation for Economic Co-operation and Development (OECD).

A number of technical changes to these rules were announced in today’s Budget and these include:

  • Amending the definition of tax to make it clear that withholding taxes are to be ignored for the purposes of the rules.
  • Amending the legislation to disregard taxes that are charged at the nil rate.
  • Capital taxes are to be taken into account where hybrid instruments, hybrid transfers and Controlled Foreign Companies (CFC) are involved.
  • Clarifying the treatment of entities which are seen as either hybrids or transparent such that any counteraction applied will be proportional.
  • Clarifying the scope of the legislation where multinational companies are involved.
  • Transactions which generate a taxable receipt for the taxpayer but not a tax deduction for the payer can now be taken into account when quantifying certain mismatches.
  • Income that is subject to tax in two jurisdictions can in some circumstances be taken into account when the imported mismatch rules apply.
  • Certain accounting adjustments which reverse or partly reverse hybrid mismatches from earlier periods will be accounted for where Part 6A applies.