Out-Law News | 06 Oct 2014 | 3:44 pm | 1 min. read
It has confirmed that it will consult on the implementation of new rules to prevent the use of 'hybrid mismatches' alongside this year's Autumn Statement, which will be delivered by the chancellor on 3 December. As part of the consultation, it has said that it will consider the case for making special arrangements for banks and insurers so that they would not be disadvantaged relative to companies in other industries.
Tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com, welcomed the UK's commitment to "multilateral not unilateral action" on hybrid mismatches, as recommended by the Organisation for Economic Cooperation and Development (OECD) as part of its base erosion and profit shifting (BEPS) project to reform international corporate tax rules.
At last week's Conservative Party conference, chancellor George Osborne said that the UK would "lead the world" by introducing anti-avoidance measures as part of this year's Autumn Statement. At the time, Self warned that "unilateral moves" in advance of the BEPS project being finalised could damage UK competitiveness.
Hybrid mismatch arrangements allow companies to exploit differences between countries' tax rules to avoid paying tax in either country, or to obtain more tax relief against profits than they are entitled to. Under the OECD's proposals, published last month, companies would be prevented from entering into these arrangements without reporting a corresponding taxable profit and would be prevented from using the reliefs set out in various international double taxation agreements if their principal reason for doing so was to avoid tax.
In its announcement, the UK government said that it would consider the case for making special provisions for banks and insurers as part of its consultation on the new hybrid mismatch rules. The OECD's provisional recommendations will allow different countries to make independent policy decisions on how to apply the rules to banks' and insurers' hybrid regulatory capital instruments. Any special provisions would prevent these instruments from being used for tax avoidance purposes, while recognising the sectors' unique regulatory requirements, it said.
"It is important that the UK government makes sensible provision for carving out the commercial operations of banks and insurers, since otherwise the collateral damage could be significant," Self said.
"It is good to see the government recognising this at this stage. However, we will need to wait for the detail of the consultation to ensure that the proposed rules are properly focused and do not, for example, impose unrealistic compliance burdens on group treasury operations," she said.