HMRC draft guidance on hybrid and other mismatches | KPMG | UK
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HMRC draft guidance on hybrid and other mismatches

HMRC draft guidance on hybrid and other mismatches

The guidance is provided to assist understanding of the application of the hybrid mismatch rules which apply from 1 January 2017.


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HMRC have published draft guidance on the application of the hybrid and other mismatch legislation, which takes effect from 1 January 2017. The guidance largely follows the legislation and incorporates previous draft examples based upon a selection of those contained within the OECD ‘Final Report on Neutralising the Effects of Hybrid Mismatch Arrangements’, with additional draft examples dealing with hybrid transfers and permanent establishments.

We would highlight the following points:

  • The guidance is unclear on whether a deemed interest deduction in respect of an interest free loan should fall within the definition of a ‘quasi-payment’ in the case where both the borrower and the lender treat the instrument as debt.
  • Mismatches which arise due to foreign exchange movements should not be within scope.
  • The guidance states that the definition of hybrid financial instruments excludes anything that is a regulatory capital security ensuring such instruments are not inadvertently caught by the rules.

In general, the draft guidance states that, when considering whether the rules should apply, parties should take all reasonable steps to establish whether a mismatch will arise, taking account of the relevant tax laws of the territories involved and the relevant facts and circumstances.Comments on the draft guidance have been requested by 10 March 2017. HMRC have noted that the guidance is a work in progress and we expect further clarity to be provided in specific areas such as interest free loans.

If you have any comments you would like to discuss with us, please get in touch with one of the named contacts.


For further information please contact :

Kashif Javed

John Addison

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