The government today (Sunday 5 October) announced a clamp-down on the decade-long use of ‘hybrid mismatches’, a technique commonly used by multinational companies to significantly reduce their tax bills.
It is the latest in a series of steps the government has taken to tackle aggressive tax planning and is expected to bring tens of millions of pounds per year of additional revenue into the Exchequer once implemented.
Hybrid mismatch arrangements exploit differences between countries’ tax rules to avoid paying tax in either country, or to obtain more tax relief against profits than they are entitled to.
The UK has worked with G20 and OECD member countries as part of the BEPS project to agree a solution that prevents companies from taking advantage of this and proposals were endorsed by G20 Finance Ministers at their meeting in Cairns last month.
The government today reaffirmed its commitment to the new rules and set out plans to consult on their implementation.
- the government will publish a consultation on the implementation of rules to prevent hybrid mismatches at the Autumn Statement on 3 December
- the BEPS project looks to reform the international tax architecture to ensure that international tax rules adequately capture the profits generated by multinational companies in the jurisdictions where the economic activity is located
- the UK has led efforts within the G20 to reform the international corporate tax rules through the OECD Base Erosion and Profit Shifting (BEPS) project, signed international agreements to tackle offshore evasion with the US, Switzerland, the Crown Dependencies and Overseas Territories and led the way on a global standard of automatic exchange of tax information with 44 other jurisdictions and countries
- as part of the consultation, we will be considering the case for special provisions for banks’ and insurers’ hybrid regulatory capital instruments (an area in which the OECD has allowed countries to make independent policy decisions)
- these provisions would prevent these instruments from being used for tax avoidance purposes, while recognising banks’ and insurers’ unique regulatory requirements and looking to ensure that they are not disadvantaged relative to other sectors