New supplementary page CT600B covering the hybrid mismatch rules

In an administrative change which may be indicative of ‘hybrid mismatch’ arrangements being subject to increased scrutiny in the future, HMRC have issued a revised version of supplementary page CT600B to the corporation tax (CT) return. From 6 April 2022 this will require a company to fill out 10 new boxes relating specifically to the hybrid mismatch rules. This is likely to require additional disclosure by many multinational groups, particularly those which include entities operating through permanent establishments or which are treated as disregarded or as a partnership for US tax purposes.

Determining the impact of the UK’s complex anti-hybrid legislation frequently requires an understanding of the tax position of investors and group entities located outside the UK. Without a specific disclosure requirement this has potentially made it difficult for HMRC to straightforwardly identify situations requiring additional scrutiny.

The announced changes to the CT return in part simply reflect the impact of Finance Act 2021 on the claims which can be made under the anti-hybrid rules. Importantly, however, they also make cases in which the anti-hybrid rules are potentially relevant much more visible to the tax authorities.

Even if a company has satisfied itself that is not subject to any hybrid mismatch counteraction in the period, it will now be required to confirm in the CT600B (among other details):

• If it is a ‘hybrid entity’;
• If there were any transactions with ‘hybrid entities’ in the same ‘control group’;
• If there were any ‘hybrid or otherwise impermissible deduction/non-inclusion mismatches’ in connection with a ‘financial instrument’;
• If there was an ‘excessive permanent establishment deduction’; and
• If there has been a ‘multinational payee deduction/non-inclusion mismatch’.

As a minimum, this means groups will be faced with an additional compliance burden of determining the answers to the above questions for each UK CT-paying company in its group – regardless of whether they have reasonably concluded that they will not be subject to any hybrid mismatch counteraction for the period or have already reflected counteractions in their CT returns.

UK companies should already be considering the application of the anti-hybrid legislation when filing their returns and so in many cases will be well placed to comply. Nonetheless, the granular nature of the questions, the complexity of (and significant recent changes to) the underlying legislation, and the practical challenges some UK entities can face in obtaining information from overseas investors, could all require additional work to be factored into the next CT compliance cycle.

In doing this it should be noted that although HMRC have updated their guidance on how to complete a UK CT return to reflect the new boxes, some important areas of ambiguity remain as to what information is actually required.

More generally, it seems likely that the provision of this enhanced information to HMRC will result in an increase in the number of enquiries into groups’ hybrid mismatch compliance and may also give rise to ‘discoveries’ by HMRC in respect of earlier periods. In this context, ensuring that the potential risks under the anti-hybrid rules are properly understood, and that the work done to support the filing positions taken is appropriately documented, will be of increasing priority.

This is especially true in cases where positive answers are provided to one or more of the new questions, but no hybrid counteraction has been reflected in the return. Groups in that position may wish to consider the merits of supplementing the newly required disclosure with additional information so as to pre-empt likely questions.

For further information please contact:

• Paul Freeman