The updated guidance reflects various legislative changes made to the hybrid mismatch rules since inception (with a useful summary of these now being included at INTM550095). It also provides helpful clarification of HMRC’s position on a number of points of interpretation (although there are still several residual areas of interpretation where uncertainty remains).
Some key points of interest emerging from the revised guidance are as follows:
- A new worked example at INTM550080 illustrating the interaction between the hybrid rules and the transfer pricing rules;
- Guidance at INTM550540 regarding payments or quasi-payments made by a securitisation company;
- Guidance at INTM550570 regarding when HMRC will consider a foreign controlled foreign company (CFC) charge to qualify as ‘equivalent’ to the UK CFC charge;
- Guidance at INTM551065 on the new special exclusion for certain regulatory capital securities that will apply from 1 Jan 2020;
- Guidance at INTM553090 on how to make a claim to extend the ‘permitted period’ in which income can qualify as dual inclusion income;
- Amendments to the guidance on ‘structured arrangements’ at INTM551110 and INTM556070 to note that “it is likely, but not essential” that the parties would be aware of the mismatch;
- Amendments to the guidance at INTM557080, INTM557220 and INTM557230 to suggest HMRC are only likely to be satisfied that a company will not have any dual inclusion income in future if a company has ceased or been struck off;
- Guidance at INTM557085 on section 259ID FA 2018 (which provides the ability to deduct a hybrid entity double deduction amount from certain related party income in some cases), including commenting on Condition D (which HMRC say refers specifically to ‘the’ investor and should not be interpreted more widely to include ‘any’ investor); and
- Various points in relation to the ‘imported mismatch rules’ in Chapter 11 (which can disallow a UK payer UK tax relief due to an overseas mismatch in the same series of arrangements), including:
- Confirmation at INTM559260 that HMRC consider there is not a requirement to re-test whether there would be a mismatch by reference to the UK tax analysis that would apply if the UK payer were a UK payer or payee in relation to the overseas payment;
- Confirmation at INTM559310 that the mechanical allocation rules from the OECD 2015 Final Report can be used as a starting position for any ‘just and reasonable’ allocation between UK and non-UK payments; and
- A new example at INTM559405 illustrating when a UK payment can be regarded as part of the same ‘series of arrangements’ as an overseas payment.
The updated guidance is available here: http://www.hmrc.gov.uk/gds/INTM/images/INTM850000_hybrids.pdf. Note that the HMRC mailbox has now been changed to email@example.com and the address for hybrid claims etc. has now been updated to a Newcastle address.
For further information please contact: