TMD: Proposed amendments to the hybrid mismatch rules | KPMG | UK
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TMD: Proposed amendments to the hybrid mismatch rules

TMD: Proposed amendments to the hybrid mismatch rules

Three substantial amendments to the hybrid mismatch rules have been proposed by HMRC.


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As discussed in our other article this week, amendments have been published to the draft provisions of the Finance Bill impacting the Hybrid and Other Mismatches legislation in Part 6A TIOPA 2010. The amendments were originally announced in December 2016, with draft provisions proposed in the pre-election Finance Bill, but were consequentially withdrawn from the Bill that received Royal Assent on 27 April 2017. The latest amendments reinstate those draft provisions and additionally provide that, from 13 July 2017, local taxes (including state taxes) are no longer to be treated as relevant taxes when considering if an amount of income has been ‘included’.

The draft provisions removed from the Finance Bill before the election, and now reinstated, include:

  • Amortisation of intangible fixed assets - A deduction in relation to an amortisation debit arising from the writing down of an intangible fixed asset would not be considered a relevant deduction. This is only for the purposes of the deduction/non-inclusion rules (Chapters 5 to 8), and could still be subject to a counteraction if a deduction for that same amount is claimed in two territories (a ‘double deduction’).
  • Formal claims for timing mismatches - A formal claim for timing mismatches, between claiming a deduction and recognising any inclusion outside the safe-harbour provided, will no longer be required in the chapters focusing on financial instruments (Chapters 3 and 4). The delay will still be subject to the requirement that it be ‘just and reasonable’. A formal claim remains a requirement for the remaining chapters.

These measures have effect from 1 January 2017.

The Government has also included further new amendments, which will apply for deductions accruing after 13 July 2017. This affects the definition of ‘ordinary income’ and therefore will apply in the following two circumstances:

  • to recognise inclusion for both determining whether a deduction/non-inclusion mismatch arises; and
  • when considering if there is dual inclusion income, which in some cases can be used to restrict a counteraction.

Prior to 13 July 2017 the legislation recognised that income would be treated as ‘ordinary income’ if it was brought into account for the purposes of calculating the income or profits on which a relevant tax was charged. A relevant tax included a foreign tax charged on income and corresponding to the UK income or corporation taxes on income. The legislation stated that a tax would not be excluded solely on the basis that it was chargeable under the law of only a part of a country, such as provincial or state taxes.

The amendment proposes that a non-national tax will not be recognised for the purpose of the hybrid rules. This is in line with the statements made in HMRC’s amended draft guidance on 31 March 2017 that local taxes are not relevant where a national tax exists.

This amendment is not retrospective, however HMRC have stated that this merely puts their intended application of the legislation beyond doubt and therefore may decide to challenge deductions accruing prior to this date.

For further information please contact:

Kashif Javed

Greg Smythe


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