INTM561500 - Hybrids: other provisions - anti-avoidance

Section 259M TIOPA 2010 contains a targeted anti-avoidance rule (TAAR). Arrangements that attempt to circumvent the hybrid and other mismatches rules may be caught and counteracted by s259M.

Arrangements may be counteracted by s259M where

  • the main purpose, or one of the main purposes, of those arrangements is to enable any person to obtain a tax advantage by avoiding the hybrid and other mismatches rules, or any overseas equivalent, and
  • if s259M did not apply, the arrangements would achieve that purpose

Arrangements are defined as including any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable).

The rule applies where a person is

  • within the scope of UK corporation tax, or
  • would be within the scope of UK corporation tax but for the arrangements

Chapter 13 applies in relation to ‘relevant avoidance arrangements’ that would, absent s259M, provide a ‘relevant tax advantage’ to a person who either is or would be within the charge to corporation tax.

The relevant tax advantage is counteracted by a just and reasonable adjustment to the person’s corporation tax treatment, as per s259M(2).

Adjustments by means of assessment, modification of an assessment, amendment, disallowance of a claim or otherwise are provided for by s259M(3).

A ‘relevant tax advantage’ is defined in s259M(4) as where a person avoids the application of Part 6A, or any non-UK equivalent rules, and so prevents either the restriction of a deduction, or an amount being taxed as income. The definition was extended by Finance Act 2021 to also include a person doing anything that results in an amount being treated as dual inclusion income.

A ‘relevant avoidance arrangement’ is defined at s259M(5) as being an arrangement where the main purpose, or one of the main purposes, is to obtain a relevant tax advantage.

Chapter 13 will not apply in cases where obtaining the tax advantage is regarded as consistent with the principles and policy objectives underlying Part 6A.

When considering the principles and policy objectives underlying Part 6A, regard can be taken, where appropriate, to the principles and objectives set out in the Final Report on Neutralising the Effects of Hybrid Mismatch Arrangements, published by the Organisation for Economic Cooperation and Development on 5 October 2015 (or any replacement, update or supplement to it).

However, it may not always be appropriate to consider the OECD Report. For example, it would not be appropriate to have regard to the OECD Report if the UK has expressed an intention to depart from that Report.

Similarly, if the OECD Report is subsequently replaced or updated, or if any supplement is added to the Report, it will not be appropriate to give regard to the Report if the relevant revision, addition or supplement indicates a material departure from the understanding of the Report when the legislation was drafted.

One consequence of the introduction of Part 6A may be that companies look to restructure with a view to removing hybrid entities from their group structures, or to change their funding arrangements with the aim of reducing their use of hybrid financial instruments. Where the replacement structures and funding arrangements do not fall within the policy scope of the OECD Report it is unlikely that the Part 6A TAAR would apply, though the application of other legislation might need to be considered.

All cases where it is considered that s259M applies should be referred to the Base Protection Policy team, BAI

By email to [email protected], or

By post to

HM Revenue & Customs
Base Protection Policy Team
Business Assets & International
S0862
Floor 4 Rear
Central Mail Unit
Newcastle
NE98 1ZZ