Switzerland: UK’s hybrid mismatch rules to impact Swiss entities

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Switzerland: UK’s hybrid mismatch rules to impact Swiss entities

intl-updates-small.jpg

The UK's new legislation to tackle hybrid mismatches, which enters into force on January 1 2017, may impact certain Swiss principal structures that are benefitting from a so-called Circular No. 8 regime.

kistler.jpg
zulauf.jpg

Jacques Kistler

Rene Zulauf

The UK rules



On September 15 2016, the UK enacted hybrid mismatch legislation as part of its Finance Act 2016, which will apply from next year. The rules as a whole are intended to implement the best practice recommendations in the OECD's final report on BEPS Action 2. The UK is one of the first countries to introduce these recommendations.

Hybrid mismatches are defined as cases where an amount is deductible in one jurisdiction, but not taxed in any other (a deduction/non-inclusion mismatch), or where an amount is deductible more than once (double deduction mismatches).

Under the UK's rules, deductions may not be permitted for payments from the UK to non-UK recipients if the arrangement gives rise to a deduction/non-inclusion mismatch, including those that arise because the UK payee is a company that has one or more permanent establishments (PEs).

Swiss impact

Swiss principal companies benefitting from the Swiss Federal Circular No. 8 regime may fall within the UK hybrid mismatch rules. Such Swiss companies use the Swiss principal model as an effective means to optimise the structure of multinational companies on a regional basis.

Where Swiss principal companies are affected by the UK rules, the UK limited risk distributor's commissionaire's costs for goods and services provided from a UK entity to the Swiss principal may no longer be fully tax deductible in the UK from January 2017. This could give rise to potentially significant additional tax costs for the UK and Swiss entities.

However, it may be possible to retain the full UK tax deduction for goods or services. This could be done by seeking an agreement with the Swiss tax authorities that Circular No. 8 will not be applied on sales to the UK and those sales will be subject to full direct federal tax in Switzerland.

Before the UK's hybrid rules apply, there is a short timeframe now for companies to assess the impact of these rules on their structures and make any changes to remain compliant with the rules.

Where any part of the UK deduction for costs of services or goods obtained from the Swiss principal might be denied, this could give rise to potentially significant additional tax costs.

Of course, the exact position for each taxpayer and resulting impact of the UK's new rules will be dependent on their specific facts, including, for example whether other rulings have been obtained. We therefore recommend that all companies review their structures to consider whether any of the UK's hybrid rules apply.

Jacques Kistler (jkistler@deloitte.ch) and Rene Zulauf (rzulauf@deloitte.ch)

Deloitte Switzerland

Tel: +41 58 279 8164 and +41 58 279 6359

Website: www.deloitte.ch

more across site & shared bottom lb ros

More from across our site

It should be easy for advisers to be transparent about costs, Brown Rudnick partner Matthew Sharp said in response to exclusive ITR in-house data
The sprawling legislation phases out Joe Biden-era green tax incentives for businesses; in other news, the UK will reportedly maintain its DST despite US pressure
New French legislation should create a more consistent legal environment for taxing gains from management packages, say Bruno Knadjian and Sylvain Piémont of Herbert Smith Freehills Kramer
The South Africa vs SC ruling may embolden the tax authority to take a more aggressive approach to TP assessments, an adviser tells ITR
Indirect tax professionals now rate compliance as a bigger obstacle than technology and automation; in other news, Italy approved a VAT cut on art sales
AI-powered tax agents are likely to be the next big development in tax technology, says Russell Gammon of Tax Systems
FTI Consulting’s EMEA head of employment tax and reward tells ITR about celebrating diversity in the profession, his love of musicals, and what makes tax cool
Canadian Prime Minister Mark Carney and US President Donald Trump have agreed that the countries will look to conclude a deal by July 21, 2025
The firm’s lack of transparency regarding its tax leaks scandal should see the ban extended beyond June 30, senators Deborah O’Neill and Barbara Pocock tell ITR
Despite posing significant administrative hurdles, digital services taxes remain ‘the best way forward’ for emerging economies, says Neil Kelley, COO of Ascoria
Gift this article