Hybrid and other mismatches: HMRC examples published

Hybrid and other mismatches: HMRC examples published

Draft examples aim to assist understanding of the application of the draft hybrids mismatch legislation published on 9 December 2015.


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New anti-hybrid rules are to be introduced to implement the final recommendations under Action 2 of the OECD’s BEPS project. The rules are aimed at counteracting tax avoidance through hybrid mismatch arrangements which result in a deduction for a payment with no corresponding inclusion in ordinary income or a double deduction for the same payment. Draft legislation was published on 9 December 2015 with the draft clauses for Finance Bill 2016 and, as expected, on 22 December HMRC published a number of draft examples illustrating the application of these new rules. Most of the examples are in line with expectations although one appears to be incorrect, as currently drafted.  There is also useful confirmation that the anti-hybrid rules are not intended to apply to deemed interest payments on interest-free loans.

The draft examples extend to 85 pages and cover 20 different scenarios.

The examples are based upon a selection of those contained within the OECD’s final report on “Neutralising the Effects of Hybrid Mismatch Arrangements”. The examples are not exhaustive, but are designed to illustrate how the draft UK legislation is intended to apply to a range of hybrid mismatch arrangements. 

Although the wording of the draft Finance Bill clauses is not entirely clear, Example 3.8 confirms that the anti-hybrid rules are not intended to apply to deemed interest payments on interest-free loans on the basis that, as a deemed interest deduction allowed for tax purposes does not involve the creation or transfer of economic rights, it is specifically excluded from being a quasi-payment.  

Also, Example 3.11 does not appear to be correct, as it states that the forgiveness of a debt is a ‘payment’ for the purposes of the anti-hybrid rules. This is not in line with the analysis set out in Example 1.20 of the OECD report, upon which the example is said to be based.  The OECD example states that “although the forgiveness of debt is a transfer of value…, it is not a payment under a financial instrument” and, therefore, concludes that the release of an obligation under a financial instrument does not fall within the scope of the hybrid mismatch rules. 

Otherwise,the examples are in line with expectations.


For further information Contact:

Michael Bird

John Addison

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