The government has announced a clamp-down on the decade-long use of ‘hybrid mismatches’, a technique commonly used by multinational companies to significantly reduce their tax bills. In simple terms, hybrid mismatch planning schemes 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.

The UK has been working closely with the OECD and the G20 to combat these issues. This move follows the release of the OECD’s draft recommendations on their base erosion and profit shifting project (BEPS) known as BEPS Act 2 and the endorsement of these proposals by G20 Finance Ministers at their recent meeting. The proposed legislation will seek to counteract the effects of various hybrid mismatch arrangements.

More details will be forthcoming when a consultation is published as part of the Autumn Statement on 3 December. The consultation will consider the case for special provisions for banks’ and insurers’ hybrid regulatory capital instruments (an area in which the OECD has allowed countries to make independent policy decisions). The provisions would prevent these instruments from being used for tax avoidance purposes, while recognising banks’ and insurers’ unique regulatory requirements and looking to ensure that they are not disadvantaged relative to other sectors.