INTM550530 - Hybrids: definition of key terms: equivalent provision under the law of a territory outside the United Kingdom

Any provision of an overseas territory’s law that is based on the OECD (2015) Neutralising the Effects of Hybrid Mismatch Arrangements, Action 2 – 2015 Final Report published on 5 October 2015, or on any replacement or supplementary publication, will be equivalent to a corresponding provision of this legislation.

Existence of equivalent provisions will not be sufficient to prevent application of the targeted anti-avoidance rule at s.259M where the conditions set out in s.259M(1) are met and the obtaining of the relevant tax advantage cannot reasonably be regarded as consistent with the principles and policy objectives of this Part.

HMRC accepts that EU Council Directive 2017/952 of 29 May 2017 (ATAD 2) meets the criteria to be an equivalent provision to Part 6A within the meaning of s.259BA TIOPA. Accordingly, HMRC also accepts that, where the legislation is considering the equivalence of Part 6A to an overseas hybrids regime as a whole, subject to the below, it will be reasonable to suppose that any EU member state which has enacted legislation implementing ATAD 2, in full, will have in place equivalent provisions to Part 6A, even if the outcome of applying those provisions is different to that which would have resulted from applying Part 6A to a similar fact pattern. However, in the event that any EU member state should be held by any of the EU Commission, the European Court of Justice or a court of competent jurisdiction in that Member State to have failed properly to implement ATAD 2 in any respect which is material to the UK tax analysis, HMRC will regard chapter 12 as applicable on the basis that the supposition as to the applicability of equivalent provisions which was reasonable at the time made has subsequently proved to be mistaken.

However, where Part 6A requires consideration of whether a specific provision within Part 6A has an overseas equivalent, it will be necessary to demonstrate that such a specific equivalent provision exists overseas. It will not be enough that the overseas regime as a whole can be regarded as equivalent.