The UK Government announced in the Budget on 11 March 2020 that it would publish a consultation on certain aspects of the UK hybrid-mismatch rules. The consultation was published on 19 March 2020 and considers three particular areas where stakeholders have raised concerns that the rules are not working as expected.

The hybrid-mismatch rules have been in force since 1 January 2017 and are aimed at counteracting tax mismatches where the same item of expenditure is deductible in more than one jurisdiction (double deduction mismatches) or where expenditure is deductible but the corresponding income is not fully taxable (deduction / non-inclusion mismatches). The rules were introduced in response to the OECD's BEPS project, with the UK being the first to adopt the OECD’s recommendations. Many EU member states have only recently introduced hybrid-mismatch rules in line with the mandated EU implementation date of 1 January 2020.

HMRC is actively auditing taxpayer positions on the hybrid-mismatch rules for FY2017 and FY2018 and, in particular, considering the application of the targeted anti-avoidance provision to taxpayer structures. The consultation therefore provides a welcome opportunity for taxpayers to engage with the Government to ensure that the hybrid-mismatch rules are applied by HMRC proportionately and within the policy objectives of the rules.


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