Hybrid mismatches

The UK’s rules on hybrid and other mismatches (referred to in this Practice Note as the hybrid rules) have applied since 1 January 2017 and aim to counteract tax mismatches that arise from the way in which a hybrid instrument or a hybrid entity is treated for tax purposes. Although the hybrid rules normally apply to cross-border transactions involving two or more jurisdictions, they can also apply to purely UK domestic transactions. Specifically, the hybrid rules target:

1. •

   deduction/non-inclusion mismatches (D/NI mismatches), ie where a payment under a hybrid mismatch arrangement is deductible in the payer jurisdiction for tax purposes but not included in the taxable income of a payee or a related party investor, and

2. •

   double deduction cases (DD cases), ie where a payment under a hybrid mismatch arrangement gives rise to more than one tax deduction

The hybrid rules deal with different categories of D/NI mismatches and DD cases in separate chapters. In each case, the relevant hybrid rules only apply if the relevant conditions have been satisfied.

For more information on the hybrid rules, see UK rules counteracting hybrid mismatch arrangements—table and Practice Notes: