Taxand UK provides a high level overview of the new rules which will apply to in-scope entities for payments/deemed payments made on or after 1 January 2017.
The UK has introduced new anti-hybrid rules that are effective from 1 January 2017. These represent the UK’s implementation of the recommendations arising from Action 2 of the Organisation for Economic Co-operation and Developments (OECD) Base Erosion and Profit Shifting (BEPS) project. Her Majesty’s Revenue and Customs (HMRC) have now published draft guidance which was open for comment/consultation until 10 March 2017. It has become apparent that the remit of these provisions is wider than originally anticipated by taxpayers.
On 22 August 2016 the OECD published an additional consultation document extending the recommendations made by Action 2 to cover mismatches arising from the use of branch structures. However, the UK had already decided to go one step further than the original OECD recommendations and had already included provisions in their draft legislation covering mismatches arising from permanent establishments.
Our recommendation is that all groups assess all payments being made out of the UK and all amounts on cross border transactions where a tax deduction is available in the UK and determine whether it could be impacted by these rules. It is important to understand if the recipient is taxing the income at full rates for that territory. If it is not, it is necessary to get a full understanding of the exact mechanics of how the territory gives effect to a reduced rate of tax as this is critical in determining whether or not the rules apply.