Hybrid and other mismatches
Published 20 July 2021
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This publication is available at https://www.gov.uk/government/publications/corporation-tax-amendments-to-the-hybrid-and-other-mismatches-rules/corporation-tax-amendments-to-the-hybrid-and-other-mismatches-rules
Who is likely to be affected
Multinational groups with UK parent or subsidiary companies that undertake cross-border transactions involving certain entities that are regarded as transparent in their home jurisdiction.
General description of the measure
This measure introduces a change to the hybrid and other mismatches regime. The change is designed to ensure that a counteraction provided for in the regime, involving payments to a hybrid entity, operates proportionately and as intended.
Policy objective
The hybrids legislation has had effect since 1 January 2017. The regime addresses arrangements that give rise to hybrid mismatch outcomes and generate a tax mismatch, and in doing so fully implements the OECD Base Erosion and Profit Shifting (BEPS) Action 2 recommendations. Mismatches can involve either double deductions for the same expense, or deductions for an expense without any corresponding receipt being taxable.
This measure makes a change to a chapter of the legislation that seeks to counter mismatches involving payments to hybrid entities and ensures a proportionate outcome when relevant entities are seen as transparent in their home jurisdiction.
Background to the measure
Following earlier public consultation, a number of changes were introduced to the legislation for hybrid and other mismatches in the Finance Act 2021. Following publication of these in the Finance Bill, and subsequent engagement with stakeholders, the government decided that further engagement was required to ensure that one specific change provided the intended policy outcome and did not have any unintended consequences. That specific change was withdrawn from the Finance Bill and following further engagement, this measure delivers that specific change.
Detailed proposal
All statutory references below are to (Taxation International and Other Provisions) Act 2010 (TIOPA 2010) unless otherwise stated.
Operative date
The changes will have effect from 1 January 2017 in so far as they affect the new relevant transparent entities (as defined).
Aspects of the change that affect partnerships will have effect from the date of Royal Assent of the Finance Bill 2021-22.
Current law
The hybrid and other mismatch regime is contained in Part 6A of TIOPA 2010 and came into force on 1 January 2017.
Proposed revisions
Legislation is being introduced to deem certain transparent entities to be partnerships, and to deem members of those entities to be partners, for the purpose of Chapter 7 of Part 6A of TIOPA 2010. The conditions for a counteraction under chapter 7 assume a mismatch involving a payment to a hybrid entity is due to that entity’s hybridity, even when in fact it is not the case. The change brought about by this measure ensures for the purposes of considering that counteraction, if certain conditions are met, relevant transparent entities are treated as partnerships and so do not meet the conditions for triggering that counteraction.
The measure also ensures that the existing legislation applies as intended to both new relevant transparent entities and partnerships by deeming certain hybrid entities to be payees for the purpose of considering the counteractions in Chapter 7.
Summary of impacts
Exchequer impact (£million)
| 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 |
|---|---|---|---|---|---|
| nil | nil | nil | nil | nil | nil |
This measure is not expected to have an Exchequer impact.
Economic impact
This measure is not expected to have any significant economic impacts.
The terms used in this section are defined in line with the Office for Budget Responsibility’s indirect effects process. This will apply where, for example, a measure affects inflation or growth. You can request further details regarding this measure at the email address listed below.
Impact on individuals, households and families
This measure has no impact on individuals or households as it only affects corporate businesses.
The measure is not expected to have an impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be impacts on groups sharing protected characteristics.
Impact on business including civil society organisations
This measure introduces a minor change to the hybrid and other mismatches regime. This measure is not expected to have any impacts on businesses or civil society organisations who are undertaking normal commercial transactions. It will only affect businesses with hybrid mismatch arrangements that arise from mismatches in international tax systems, and then it will only impact a small subset of these businesses who make payments to a certain type of entity in other jurisdictions. For these affected businesses there is likely to be a negligible one-off cost of familiarising themselves with this change. There are not expected to be any continuing costs.
Customer experience is therefore expected to remain broadly the same, as the measure does not change how businesses or civil society organisations who are undertaking normal commercial transactions interact with HMRC.
Operational impact (£million) (HMRC or other)
There are no additional HMRC costs.
Other impacts
Other impacts have been considered and none has been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, contact the Base Protection Policy Hybrids team. Email: mailboxhybrids@hmrc.gov.uk.