In the third of our series of articles on the new hybrid rules, we show how the rules can apply to deny a deduction for the purchase of goods.
The legislation to counter hybrid and other mismatches operates mechanically with no motive test and applies, broadly, to deductions on or after 1 January 2017. All UK deductions are within the scope of the rules, not just financing costs which are often used in examples. A recent case, summarised in the third of our series of articles on the new hybrid rules, illustrates how the rules can apply to deny a deduction for the purchase of goods.
In this case, the profit arising in ProcureCo, and hence the profit which is not taxed, may be small. However, the rules apply mechanically to gross payments which are not taxed. This means that a significant UK adjustment may arise, even though only a small profit may not have been taxed.
This example is a useful reminder that the rules apply to all payments, not just financing expenses. If you have any questions on the application of the hybrid mismatch rules to your business, then please get in touch with your usual KPMG contact or one of the named contacts below.
This article is the third in a series on the application of the UK’s new hybrid and other mismatch rules. The previous articles in this series covered an overview of the new rules, and their application in the context of an election to disregard a UK subsidiary for US tax purposes.
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