Hybrid mismatches

The measure

The government announced in November 2020 that it would be making technical changes to the hybrid and other mismatch rules following on from a consultation earlier in 2020 on whether the rules were operating proportionately and as intended. In November, alongside publication of the summary of responses to the consultation, HMRC published draft legislation on some aspects and summarised other amendments that it intended to make to the rules.

Today the government confirmed proposed further amendments to the rules, although draft legislation on these is still awaited. The proposals set out today appear broadly similar to those summarised in November although the precise descriptions of some of the proposals has been changed, two proposals are no longer mentioned, and one new amendment to the imported mismatch rules is proposed. 


Who will be affected?

Measure cMultinational groups with entities subject to UK corporation tax that are involved in arrangements that would otherwise result in a mismatch in tax treatment referable to hybrid entity/instruments or similar characteristics. 


When will the measure come into effect?

Some of the proposed changes will apply retrospectively from 1 January 2017 when the UK’s hybrid and other mismatch legislation first came into effect, but others will apply from the date of Royal Assent to the Finance Bill containing the changes.


Our view

The proposed amendments are highly technical but are likely to be generally welcomed as they seek to clarify areas of uncertainty or unintended effect in the existing rules. However it is difficult to assess the full impact in advance of the publication of draft legislation.

It also remains to be seen whether the two proposed changes summarised in November 2020 that are no longer mentioned have been entirely abandoned. One of these is the proposal to amend section 259GB(4A) TIOPA 2010 to treat limited liability companies seen as tax-transparent by all their members in the same way as partnerships, and the other relates to the definition of ordinary income in the context of certain interest receipts received by investment trust.