Hybrid Mismatch Rules: Requirements for UK companies to consider their cross-border transactions and structure

Put simply, the hybrid mismatch rules (as they are known) are there to make the global tax system fairer.


They do this in two ways:


  1. By ensuring that where a company within the group gets a deduction for an intra-group payment, that the recipient company is taxed on it; and
  2. Preventing a group from getting a deduction for the same expense in two different jurisdictions.


The legislation is complex but tackles those situations both where the structure of the transaction leads to the outcome and where the nature of the entity does. The latter usually arises because the entity is treated in different ways by the two countries involved i.e. it is a hybrid entity. A good example of this is a US LLC which can be treated as transparent in the US but is treated as opaque in the UK (and this can create some pretty nasty UK tax outcomes).


The UK legislation now requires UK companies to confirm that they have considered their cross-border transactions and structure, and can confirm that they are not within the hybrid mismatch rules. This must be done on the annual corporation tax return.


We can work with you to ensure that you are complying with the rules, and to identify any areas of risk within your current structure.


What next?

If you have any questions or would like assistance, please contact Thomas Adcock or a member of the tax team.

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