Additional compliance obligations in relation to anti-hybrid rules

HMRC has updated form CT600B, the supplementary page of the UK corporate tax return.

The revised CT600B will require companies to fill out 10 boxes relating specifically to the anti-hybrid rules where applicable, making it far more transparent for HMRC to understand whether anti-hybrid arrangements are in place. The revised CT600B is effective from 6 April 2022, for accounting periods beginning on or after 1 April 2015.

Reminder of the anti-hybrid rules

The anti-hybrid rules have been in force for several years. They broadly address arrangements that give rise to hybrid mismatch outcomes, and generate a tax mismatch. Examples of a tax mismatch in cross border structures include double deductions, or deductions with no corresponding income pick up.

The rules seek to neutralise this tax mismatch by denying a deduction to the payer, or bringing a receipt into charge for the recipient.

Hybrid mismatch outcomes can arise from hybrid financial instruments and hybrid entities, and from arrangements involving permanent establishments. An example of a hybrid entity may be where a UK entity is ‘checked’ from a US perspective, meaning for US tax purposes it is fiscally transparent.

Disclosure requirements

The CT600B asks a for a series of six confirmations, whereby a box must be checked where a statement is true, as follows:

• the company is a hybrid entity
• there were any transactions with hybrid entities in the same control group as this company
• there were any transactions with hybrid entities
• there were any hybrid or otherwise impermissible deduction/non-inclusion mismatches in connection with a financial instrument.
• there was deduction/non-inclusion mismatch in connection with a financial instrument
• there was an excessive permanent establishment (PE) deduction
• there has been a multinational payee deduction/non-inclusion mismatch
• there was multinational payee deduction/non-inclusion mismatch
• there has been a counteraction under Part 6A Taxation (International and Other Provisions) Act 2010 (TIOPA 2010)
• there has been a counteraction under any of the chapters of Part 6A TIOPA 2010.

The final four boxes require amounts to be provided where the rules are triggered such as the amount of any counteraction.

Next steps

UK companies should already be considering whether the anti-hybrid rules apply when filing their UK corporate tax returns.

However, given the detailed questions which are posed in the CT600B, coupled with the complexity and recent changes to the anti-hybrid legislation, additional work may be required to ensure that disclosure requirements can be appropriately met, or whether additional analysis is required. Clearly, this should be factored into the timelines for compliance cycles, particularly where information may be required from overseas shareholders as this may take time to receive.

With this additional disclosure requirement leading to greater transparency and information for HMRC, it is likely that where anti-hybrid arrangements are in place, this will the subject of greater scrutiny and targeted reviews by HMRC. This is likely to particularly be the case were no counteraction has been reflected.

To discuss this matter further or for help in structuring your business, please contact Emma Locken, or your usual Crowe contact.