皇冠体育app

1. Introduction

This explanatory memorandum has been prepared by Her Majesty鈥檚 Commissioners for Revenue and Customs (HMRC) on behalf of Her Majesty鈥檚 Treasury and is laid before the House of Commons by Command of Her Majesty.

2. Purpose of the instrument

皇冠体育appse regulations will retain an exemption in the hybrid and other mismatches rules in section 259N(3)(b) of the Taxation (International and Other Provisions) Act 2010 (TIOPA 2010) and the Hybrid and Other Mismatches (Financial Instruments: Excluded Instruments) Regulations 2019 (SI 2019/1345) for certain regulatory capital instruments issued by banks.

This exemption will otherwise fall away after 31 December 2022 due to a 鈥榮unset clause鈥� in SI 2019/1345. 皇冠体育appse regulations will remove the sunset clause using existing negative regulation-making powers so that the exemption continues to apply after 31 December 2022.

3. Matters of special interest to Parliament

Matters of special interest to the Select Committee on Statutory Instruments

None.

4. Extent and territorial application

皇冠体育app territorial extent of this instrument is the United Kingdom (UK).

皇冠体育app territorial application of this instrument is the UK.

5. European Convention on Human Rights

As the instrument is subject to negative resolution procedure and does not amend primary legislation no statement is required.

6. Legislative context

Upon introduction in 2016, the UK鈥檚 hybrid and other mismatches rules provided an exemption for financial instruments that were regulatory capital securities for the purposes of the Taxation of Regulatory Capital Securities Regulations 2013 (SI 2013/3209).

Following the repeal of SI 2013/3209, Finance Act 2019 introduced a power (section 259N(3)(b) TIOPA 2010) to amend the hybrid and other mismatches rules by secondary legislation. This regulation-making power was used when the Hybrid and Other Mismatches (Financial Instrument: Exclusions) Regulations 2019 (SI 2019/1251) were laid in September 2019 with effect from 1 January 2019.

It was necessary to repeal and replace these regulations with effect from 1 January 2020 in order to give effect to amendments to the European Union鈥檚 Anti-Tax Avoidance Directive (ATAD). 皇冠体育appse amendments required the聽scope of the聽hybrid and other mismatches exemption to be limited to certain regulatory capital issued by the banking sector聽only, and for its duration to be limited. 皇冠体育appse requirements applied from 1 January 2020, and European Union (EU) Member States (including the UK at that point) were not able to apply any exemption after 31 December 2022.

皇冠体育app current ATAD-based exemption is contained in SI 2019/1345 and has effect from 1 January 2020 until 31 December 2022.

This amending instrument is made using the powers contained within section 259N of TIOPA 2010 to remove the time limitation, so that the exemption continues to apply from 1 January 2023.

7. Policy background

What is being done and why?

皇冠体育app hybrid and other mismatches rules in Part 6A of TIOPA 2010 are an anti-avoidance regime that seeks to counteract mismatches in tax treatment of instruments and structures across jurisdictions. Banks issue regulatory capital instruments that聽as a result of聽regulatory requirements聽may include some聽鈥榟ybrid鈥� features, meaning that they have some equity-like as well as debt-like characteristics. This聽may mean there is a mismatch in tax treatment across jurisdictions.

皇冠体育app UK鈥檚聽general聽approach聽is聽that interest paid on regulatory capital instruments should be deductible,聽on the basis that聽the hybrid features聽are regulatory requirements which provide stability for the financial sector and for the entire UK economy.

皇冠体育app exemption from the hybrid and other mismatches legislation supports this policy by allowing a deduction for interest paid on these instruments. It was not intended that this treatment should be聽displaced by the聽hybrid聽and other mismatches聽rules. This position is supported by the聽Organisation for Economic Co-operation and Development鈥檚 Base Erosion and Profit聽Shifting (BEPS) Project聽recommendations, which聽give聽countries freedom in their policy choices as to whether their聽hybrid and other mismatches rules should be applied to聽tax聽mismatches that arise聽on聽intra-group hybrid regulatory聽capital.

皇冠体育appre is currently an exemption from the hybrid and other mismatches rules for certain regulatory capital instruments. However, this will fall away on 31 December 2022 due to a sunset clause in the current regulations required by an EU directive. If the sunset clause is not removed the resulting change in tax treatment from 1 January 2023 could affect certain banks鈥� regulatory capital instruments. 皇冠体育app UK is no longer obliged to comply with the EU Directive requiring the sunset clause now that it has left the EU.

皇冠体育appse amending regulations will therefore remove the sunset clause ensuring the existing exemption continues to apply after 31 December 2022.

8. European Union withdrawal and future relationship

This instrument does not relate to withdrawal from the European Union.

9. Consolidation

皇冠体育appre are no plans to consolidate the legislation.

10. Consultation outcome

[Outcome of the consultation will be inserted.]

11. Guidance

HMRC鈥檚 International Manual explains this exemption at INTM551060.

皇冠体育app guidance will be updated when the instrument comes into force.

12. Impact

皇冠体育app impact on business, charities or voluntary bodies is limited to a small number of banks. 皇冠体育appse regulations simply ensure that the existing exemption for these hybrid regulatory capital instruments continues to apply after 31 December 2022. Businesses impacted by this change will incur insignificant one-off costs of familiarisation with the amendment. 皇冠体育appre are not expected to be any continuing costs to those businesses from the amendment.

皇冠体育appre is no, or no significant, impact on the public sector.

A tax information and impact note covering this instrument will be published.

13. Regulating small business

皇冠体育app legislation does not apply to activities that are undertaken by small businesses.

14. Monitoring and review

HMRC will monitor the impact of the regulations through information collected on tax returns and through communications with affected taxpayer groups.

皇冠体育app regulations do not include a statutory review clause. 皇冠体育appy amend United Kingdom tax legislation and therefore fall within the exceptions at section 28(3)(a) of the Small Business, Enterprise and Employment Act 2015.

Contact

If you have any queries regarding the instrument, please contact Samuel Louks or Andrew Martel at [email protected].

Richard Thomas, Deputy Director for Financial Products and Services, at Her Majesty鈥檚 Revenue and Customs can confirm that this explanatory memorandum meets the required standard.

[Name of Minister] at the [name of department] can confirm that this explanatory memorandum meets the required standard.