Hybrid and Other Mismatch rules amendments | KPMG | UK
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Hybrid and Other Mismatch rules amendments

Hybrid and Other Mismatch rules amendments

Two amendments have been made to the hybrid mismatch rules to improve the way these rules will work.


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Who should read this?

Multinational groups with a UK parent or UK subsidiaries which have arrangements involving a mismatch in tax treatment, whether between the UK and another jurisdiction or between two non-UK jurisdictions as part of an arrangement involving the UK.

Summary of proposal

The UK Government has made technical amendments to the hybrid and other mismatch rules (Part 6A TIOIPA 2010) in two areas.

  1. Treatment of amortisation deductions. The rules may apply by reference to payments in relation to which an amount may be deducted where there is a mismatch in the tax treatment.  Amortisation can be within the scope of these rules because deductions are given for the payment to acquire certain types of asset.  The rules are being amended such that deductions for amortisation are no longer within the scope for the purposes of four of the charging chapters: Chapter 5 (hybrid payer deduction/non-inclusion mismatches); Chapter 6 (payer deduction/non-inclusion mismatches relating to transfers by permanent establishments); Chapter 7 (hybrid payee deduction/non-inclusion mismatches); and Chapter 8 (Multinational payee deduction/non-inclusion mismatches). However, amortisation deductions will remain relevant deductions for the purposes of the rest of the hybrid mismatch regime.  
  2. Permitted period claims. The hybrid mismatch rules include provisions which allow mismatches in the timing of the recognition of deductions and income to be disregarded if amounts are brought into account within a certain period of time. The general rule is that a claim must be made, but for two of the charging chapters the requirement for a claim is now to be removed.  This is relevant for Chapter 3 (hybrid and other mismatches from financial instruments) and Chapter 4 (hybrid transfer deduction/non-inclusion mismatches).


The changes will apply from the commencement of new hybrid mismatch rules which are effective from 1 January 2017.

Key changes from the draft legislation

Draft clauses for these measures were not published in December so this is the first time we have seen actual legislation.  The Finance Bill is completely in line with the technical note outlining the proposals which was published in December.

Our view

Removing the need to make permitted period claims should remove a substantial administrative burden from UK companies which are a party to arrangements involving financial instruments and hybrid transfers, in particular those operating in the financial services sector.

Explicitly excluding amortisation deductions from the scope of the relevant deduction/non-inclusion mismatch chapters aligns the UK rules to the OECD recommendations and to our expectations of how the rules were intended to operate.


Rob Norris

+44 (0)121 232 3367



John Addison

+44 (0)20 7694 4458


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