Policy paper

Corporation Tax: hybrid and other mismatches - permitted taxable periods of payees and deductions for amortisation

Published 8 March 2017

Who is likely to be affected

Large multinational groups with UK parent or subsidiary companies involved in cross-border or domestic transactions involving a mismatch in the tax treatment within the UK or between the UK and another jurisdiction.

General description of the measure

This measure, which was announced in a technical note at the Autumn Statement, makes 2 minor changes to the hybrid and other mismatch regime introduced by Finance Act 2016 and contained in Part 6A of Taxation (International and Other Provisions) Act 2010 (TIOPA 2010).

The first change removes the need to make a formal claim in relation to the permitted time period rules in Chapters 3 and 4 of Part 6A, which deal with mismatches involving financial instruments.

The second change provides that deductions for amortisation are not treated as relevant deductions for the purposes of Chapters 5 to 8 of Part 6A.

Policy objective

The measure ensures that the regime operates as intended.

The removal of the need to make a formal claim in relation to financial instruments is intended to reduce the compliance burden for taxpayers, given the high volume of transactions in financial instruments.

The changes which ensure that amortisation is not treated as a relevant deduction ensure that, in line with the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Sharing (BEPS) Action 2 recommendations, amortisation deductions are not treated as giving rise to a hybrid or other mismatch in relation to Chapters 5 to 8.

Background to the measure

The government announced in a technical note, published at the Autumn Statement, that it would introduce two minor changes to the hybrid and other mismatch regime. The announcement was made following extensive discussions with stakeholders and will ease the compliance burden in relation to certain claims and ensure that amortisation deductions are not within scope of these rules.

Detailed proposal

Operative date

The measure will have effect from the commencement of the hybrid and other mismatch regime, which came into effect on 1 January 2017.

Current law

The current law in relation to the permitted taxable periods for Chapters 3 and 4, Part 6A TIOPA is set out in section 259CC(2)(b) and section 259DD(2)(b) respectively. These subsections require a formal claim to be made in relation to permitted time periods which commence more than 12 months after the end of the accounting period in which a relevant deduction has been claimed.

The current law in relation to relevant deductions is set out in section 259BB(1)(b), and simply defines a relevant deduction as an amount which may be deducted from the payer’s income for a taxable period.

Proposed revisions

The proposed revisions were set out in a technical note published on 5 December 2016.

Legislation will be introduced in Finance Bill 2017. The detailed changes to Part 6A of TIOPA 2010 are as follows:

• the need for a formal claim under Chapter 3, which deals with hybrid and other mismatches from financial instruments, is removed by amending section 259CC(2)(b)
• the need for a formal claim under Chapter 4, which deals with hybrid transfer deduction/non-inclusion mismatches, is removed by amending section 259DD(2)(b)
• Chapters 5 to 8 of Part 6A TIOPA 2010 are amended by inserting a new sub-section into each Chapter which disregards deductions for amortisation when considering whether a relevant deduction has caused a hybrid or other mismatch. Chapter 11 of Part 6A of TIOPA is also amended by inserting a new sub-section which disregards deductions for amortisation when identifying PE (permanent establishment) deductions. The amortisation deductions which can be disregarded are defined by reference to the UK intangible fixed asset regime in Corporation Tax Act 2009 (CTA 2009), and specifically to debits brought into account under section 729 or section 731 CTA 2009 - or deductions in other territories which are equivalent to those UK deductions

Summary of impacts

Exchequer impact (£m)

2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022
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.

Impact on individuals, households and families

The measure is not expected to impact on individuals or households, or on family formation, stability or breakdown.

Equalities impacts

This measure is not expected to have a significant or disproportionate impact on groups with legally protected characteristics as recognised in the Equality Act.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on businesses. New applicants will incur one off costs of familiarisation with the new rules. Overall this measure is expected to simplify the hybrid amendments regime as the requirement to make a formal claim in relation to financial instruments will be removed. Making it explicit that deductions for amortisations are out of scope is expected to make the rules easier to apply, and speed up the analysis and decision-making process for those businesses who claim such deductions (or who may be a position to claim them in the future).

There is no impact on civil society organisations.

Operational impact (£m) (HMRC or other)

It is anticipated that there will be negligible IT and operational impacts for HM Revenue and Customs (HMRC).

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be monitored through information collected from tax returns and kept under review through regular communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please contact Mark Bryan:
Telephone: 03000 585607
Email: mark.bryan@hmrc.gsi.gov.uk
Email: hybrids.mailbox@hmrc.gsi.gov.uk