EU Directive on hybrid mismatches with third countries

Mon 19 Jun 2017

On 29 May 2017 the European Council adopted a Directive to prevent corporate groups from exploiting the disparities between two or more tax jurisdictions, by adopting rules to close down ‘hybrid mismatches’ with the tax systems of third countries.  Member States will have until 1 January 2020 to transpose the directive into national laws and regulations (1 January 2022 for one specific provision).

The UK has already implemented its own ‘hybrid and other mismatch’ rules (FA 2016 Sch10 and TIOPA 2010 new Part 6A), which apply to payments and quasi payments made on or after 1 January 2017.

Some refinements to those provisions were included in clause 35 of Finance Bill 2017, but have not been included in Finance Act 2017. They were scheduled to have had effect for payments and quasi payments made on or after 1 January 2017.  These refinements removed the need to make claims to extend the ‘permitted taxable period’ over which the extent of a mismatch is assessed for certain cases, and excluded intangible asset regime amortisation from being a ‘relevant deduction’ to which the mismatch rules could apply.

While it is not yet certain whether and when these refinements will be enacted, based on statements made to Parliament on the Government’s policy intention for the dropped measures, one option would be to assume they will be applied from the originally intended date.