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Evidence and documentation (part 6)

Published 17 December 2025

This part recommends helpful evidence and documentation of compliance work applied to determine the imported hybrid mismatches outcome. Documentation should show if an arrangement is within scope of the imported hybrid mismatch rules. As well as, the appropriateness of counteractions. This is demonstrated by:

• setting out the group structure and details of the arrangements
• demonstrating the steps taken, data relied upon and the outcomes of the analysis
• providing contemporaneous evidence to support conclusions and the filing position
• documenting the governance taken to confirm that the process and data relied upon are robust

Compliance risk can be created when the annual analysis and review to determine the imported hybrid mismatches outcome is:  

• insufficient in scope and depth
• not carried out with the involvement of persons knowledgeable about the UK business or its connection to worldwide operations
• performed too late
• supported by inadequate documentation

Being able to demonstrate, with underlying evidence, the level of care taken to calculate the hybrid position at the time of filing is highly relevant to penalty determination when adjustments arise during enquiry.

Testing and evidencing the outcome 

HMRC expects the outcome of your analysis to be reviewed and tested by the UK risk lead, possibly with the help of a tax agent. The UK risk lead should check that documentation accurately reflects the facts from a UK perspective. Such reviews are especially important where there have been substantial changes to:

• the group’s corporate structure or business model
• acquisition of or by a third party
• the hybrid mismatch rules relevant to the transactions that concern UK entities

HMRC understands that UK businesses may have difficulties in:  

• being made aware of changes to funding or supply chain structure which do not involve a UK entity as a direct participant
• being aware of changes to the tax rules in other jurisdictions
• construing the extent to which there is an overarching arrangement in relation to a UK payment
• how to achieve a just and reasonable apportionment of the mismatch, to be counteracted in the UK

It is the UK business that is responsible for a correct and complete tax return, both in fact and law. HMRC expects the UK business to make all best efforts to get the tax return correct. They should work with stakeholders, group tax or professional advisors, to address and mitigate the risk. The degree of work needed to robustly support the imported hybrid mismatch position, test, and mitigate any risk will vary. This is likely to be impacted by the: 

• size and complexity of the business and group
• risk profile of the business such as level of business change
• volume and materiality of intra-group transactions in scope

Where uncertainty remains the UK business must choose the option most likely to be correct in law. HMRC expects uncertainty in filing positions to be disclosed. Read Help ensuring documents filed with HMRC are correct and complete GfC13 for further support.

The following questions can be used, as an indicative guide, to test the outcome of work relating to hybrid mismatches. Do I have a clear and current understanding of: 

• the control group?
• all cross-border payments and quasi-payments from UK entities to other members of the control group or structured arrangement?
• the meaning of over-arching arrangements and have I applied this to determine which UK payments and quasi-payments are part of one?
• the tax mismatches arising within any of these over-arching arrangements and have I considered if the core chapters of the hybrid mismatch rules apply?
• whether the outcome reflected in the tax return is correct and complete?
• Help ensuring documents filed with HMRC are correct and complete GfC13?

Helpful supporting records and information

Entities within the charge to UK tax are required by law to keep such records as are needed to make and deliver a correct and complete return. This includes records evidencing that the imported hybrid mismatch rules have been accurately applied and reflected in the filed returns.

The examples provided set out the types of supporting business records and information to retain in relation to the imported hybrid mismatch rules to support filed returns.

Whilst not exhaustive, the examples are comprehensive. They allow businesses to identify records or information that may exist and select the most relevant. The examples are not intended as a checklist of supporting information which we expect the business to retain in full. The depth of supporting information will vary by business depending on:

• the nature and materiality of the transactions
• the degree of business change
• any statutory documentation requirements

HMRC frequently observes the difficulty businesses experience in trying to locate records:

• when under enquiry at a later date
• after key staff have left the business

This can lead to increased resource needs and compliance costs. HMRC recommends contemporaneous retention of supporting records. Records should ideally be retained until it is clear that the transactions will not be subject to enquiry. This should take into account GDPR obligations.

Examples of helpful supporting records and information 

The examples of helpful records and information follow the recommended methodology in part 3.

Top down step 1 — identify relevant hybrid mismatches

Details of legal entity group structure chart.  

A best practice approach is for a legal entity group structure chart to contain: 

• the entire consolidated worldwide group
• updates for each accounting period
• entity type - for example a limited company, a partnership or individual
• territory of incorporation and, where different, territory of tax residence of each entity
• details of any entities which are dual resident or not tax resident in any global territory or jurisdiction
• permanent establishments including the territory of establishment
• details of check the box status for US tax purposes
• ownership information to evaluate control and related party definitions
• sufficient information to identify risk of double deduction or deduction/non-inclusion outcomes

HMRC understands that the full legal entity group structure chart may not be available or proportionate for group tax to provide for a large multinational enterprises in an accounting period.  At a minimum, the UK business should keep a version with all entities relevant to the imported hybrid mismatches analysis. This is in line with the recommendations in TCRM3343 The Business Risk Review (BRR+).

Details of relevant hybrid mismatches in the control group or structured arrangement.

For each relevant hybrid mismatch in the control group or structured arrangement, identify the:  

• type of hybrid mismatch, for example deduction/non-inclusion mismatch or double deduction
• type of payment or quasi-payment
• entity making payment or quasi-payment
• entity receiving payment or quasi-payment

Top down step 2 — identify over-arching arrangements

Document process undertaken to determine each of the arrangements that form the series of arrangements (the over-arching arrangement).  

For each arrangement in the series of arrangements: 

• names of entities
• territory of tax residence for each entity
• details of any payments or quasi-payments

A complex over-arching arrangement can be evidenced as a process flow chart. 

Top down step 3 and optional step 2 — another territory’s capability to counteract the relevant mismatch

Details of the supporting analysis to confirm whether it is both:  

• reasonable to suppose that another territory has hybrid mismatch provisions that are OECD mismatch compliant
• that the OECD mismatch compliant territory is capable of considering the relevant hybrid mismatch under the law of the territory

To include any reasonable assumptions made or relied upon, data used and discussions undertaken with parties referred to in step 3 or optional step 2.  

Top down step 4 — determine the counteraction

Details of the supporting records of the counteraction calculation, data used and where stored.  Including the calculation of any just and reasonable apportionment. 

Top down step 5 — review of imported mismatch analysis

Details of the review and testing by the UK risk lead of the imported hybrid mismatch analysis from group tax, including:

• a review of the group structure
• details of the hybrid mismatches in the control group or structured arrangement

The review is to ensure that:

• the imported hybrid mismatch analysis is complete and consistent with the UK risk lead’s knowledge of the UK business
• trigger events that impact on the structure and arrangements have been considered

To include details of review undertaken, by whom, when, facts and data relied upon and outcome of review.