This measure will neutralise the tax effect of hybrid mismatch arrangements in accordance with the recommendations of Action 2 of the G20/OECD Base Erosion and Profit Shifting (BEPS) project. In addition, the measure will also neutralise the tax effect of hybrid mismatch arrangements involving permanent establishments.
This measure seeks to tackle aggressive tax planning where, within a multinational group, either one party gets a tax deduction for a payment while the other party does not have a taxable receipt, or there is more than one tax deduction for the same expense.
The aim is to eliminate the unfair tax advantages which arise from the use of hybrid entities, hybrid instruments and permanent establishments, and thereby encourage businesses to adopt less complicated cross-border investment structures.
The measure applies to payments made on or after 1 January 2017 involving hybrid entities or instruments which give rise to a hybrid mismatch outcome.
Full details are in the HMRC budget paper here: https://bit.ly/1puxDeG