Hybrid mismatch arrangements: the UK’s take on Action 2

The draft legislation on hybrid mismatch arrangements, which will apply from 1 January 2017, is closely based on the recommendations in the Action 2 report. The absence of a purpose test or a UK tax benefit test means that many commercially motivated arrangements are potentially within scope. The reach of the draft legislation also extends beyond intra-group transactions, both by reason of the fact that some provisions apply a 25% test in assessing whether the parties are related, and in any event third party arrangements can still be caught if they are found to be ‘structured arrangements’.