United Kingdom – Hybrid mismatch arrangements consultation, other BEPS-related focus

December 3:  The UK government today issued items that focus on multinational corporations and follow the OECD’s base erosion and profit shifting (BEPS) action plan—one issuance being a consultation document concerning hybrid mismatch arrangements, and the other being the Autumn Statement 2014 that includes provisions relating to country-by-country reporting, the hybrid mismatch proposal, and a rule to address “diverted profits tax.”

Autumn Statement

The Chancellor today issued the Autumn Statement 2014 [PDF 1.87 MB] that includes measures reflecting the hybrid mismatch proposal, country-by-country reporting and the “diverted profits tax.”

The “diverted profits tax” would apply to a company’s profits that have been diverted from the UK through complex arrangements and would apply to both UK and foreign multinational companies. For example, if a company conducts a lot of business activity in the UK (e.g., sales) but can avoid paying corporation tax by moving profits generated in the UK to other countries through the manipulation of the international tax rules, the UK would be able to tax those profits at a rate of 25%. Read more on the KPMG Autumn Statement webpage.

Consultation on hybrid mismatch arrangements (BEPS Action 2)

HM Treasury and HM Revenue & Customs today released for consultation and comments a report concerning the UK’s contribution to the ongoing OECD work on a commentary to the G20-OECD report on BEPS Action 2 (Neutralise the Effects of Hybrid Mismatch Arrangements) and on issues relating to implementation of the recommendations contained in that report which will guide development of legislation in the UK.

As noted in today’s HM Treasury report [PDF 566 KB], the BEPS proposals would aim to neutralise the effect of hybrid mismatch arrangements in accordance with recommendations of Action 2 of the G20-OECD BEPS project.

The aim would be to address aggressive tax planning when, within a multinational group, either one party gets a tax deduction for a payment while the other party does not have a taxable receipt, or when there is more than one tax deduction for the same expense. Introduction of the proposed rules would aim to eliminate any tax advantage arising from the use of hybrid entities and instruments and encourage businesses to adopt less complicated and more transparent cross-border investment structures.