HMRC has published its response to the recent consultation on the operation of the UK hybrid-mismatch rules along with draft legislation to amend the rules in various respects. Although the consultation document identified discrete areas where HMRC were seeking views, HMRC also welcomed broader feedback on the current operation of legislation to the extent it was not operating proportionately or as intended.
HMRC’s proposals only offer partial solutions to many of the issues identified by stakeholders. In particular, US multinational groups may continue to suffer material disallowances under the double deduction rules in some common (and benign) commercial structures. It is clear from our recent discussions with HMRC that they have endeavored strike a balance between fixing some of the issues with the current legislation while ensuring the rules cannot be manipulated. The remaining pitfalls within the legislation which continue to lead to economic double taxation are therefore deliberate policy choices that HMRC intends to stick by irrespective of the harmful consequences for some taxpayers.
