Some aspects of the corporation tax rules which apply to arrangements involving hybrid structures and instruments – discrepancies arising from differences in tax treatment between two jurisdictions – will be amended to clarify how and when the rules apply, and to ensure that the rules operate as intended.

Legislation will be drawn up in Finance Bill 2017-18 to introduce the following changes to the hybrid and other mismatches regime:

• a change to the definition of tax in to make it clear that withholding taxes are to be ignored for the purposes of the regime;
• changes to disregard taxes charged at a nil rate;
• an amendment to ensure that capital taxes can be taken into account in relation to hybrid instruments, hybrid transfers and controlled foreign companies
• clarifications to the treatment of entities which are seen as hybrids by some investors, but as transparent by others - this change makes it clear that in such cases, any counteraction applied by the regime will be proportional;
• clarification of the scope of the legislation in relation to multinational companies;
• an amendment to take account of certain transactions which do not generate a tax deduction for the payer, but give rise to a taxable receipt for the payee. This amendment ensures that such transactions can be taken into account when quantifying certain mismatches;
• confirmation that in certain circumstances, income taxable in two jurisdictions (dual inclusion income) can be taken into account when applying the imported mismatch rules;
• amendment to take account of certain accounting adjustments which effectively reverse, or partially reverse, hybrid mismatches in earlier periods

The changes in relation to taxes charged at a nil rate, and the change in relation to multinational companies, will have effect from 1 January 2018. The remaining changes will have effect from 1 January 2017, which was the original commencement date of the regime. It is not expected that these changes will have any impact on the Exchequer’s coffers.

Alongside those amendments, it was confirmed that powers giving effect to double taxation arrangements will be amended to allow the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Proft Shifting would be implemented with effect from Royal Assent of the Finance (No. 2) Act 2017. Like the hybrid mismatches amendments, it is not thought to have any impact on the public purse.

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