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Hybrid and other mismatches – example of a dual resident trading company

Example of a dual resident trading company

This week’s article in our series looks at the impact of the hybrid rules on trading companies which are tax resident in two jurisdictions.


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This is the fifth in a series of articles looking at the practical implications of the anti-hybrid and other mismatch rules. 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. Hence all UK deductions are within the scope of the rules, not just financing costs. In this article, we illustrate how the rules can apply to trading deductions in a dual resident company. Tax relief can be denied in the UK where expenditure, including trading deductions, is deductible in two jurisdictions because a company is dual resident.


Suppose a trading company is tax resident in two jurisdictions, e.g. there is a non-UK incorporated and tax resident company which is managed and controlled in the UK. This situation has not arisen for tax planning reasons. 

For simplicity, it is assumed that all income and expenditure is charged to tax in both jurisdictions in the same period. 

Because the company is dual resident, all of the expenditure is deducted from the company’s income for corporation tax purposes and for the purposes of a tax charged under the law of a territory outside the UK.

Why does this matter?

The effect of the hybrid and other mismatch rules is that expenditure may not be deducted in the UK unless it is deducted from income which is brought into charge in both jurisdictions in which the company is resident. 

If the company is profitable, there would not be a disallowance. For example, if there is 100 of income and 90 of deductions, all of the expenditure is deductible against income which is taxed in both jurisdictions.

However, to the extent that there is a loss, an amount of expenditure equal to the loss has not been deducted from income which is within the charge to tax in both jurisdictions, and so relief in the period is denied. For example, if there is 100 of income and 110 of deductions then relief for 10 of deductions would be denied in the period and, for example, could not be surrendered as group relief.

The amount which has been disallowed can be carried forward and may, in certain circumstances, be offset against income in future periods.

We would encourage businesses to act now to ensure that they fully understand the tax treatment of their global transactions, and to establish what the impact of the new rules on them may be. If you have any questions, then please get in touch with your usual KPMG contact or one of the named contacts below.

This article is the fifth in a series on the application of the UK’s new hybrid and other mismatch rules. The previous articles in this series cover:


For further information please contact :

Rob Norris

Mark Eaton

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KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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