Disregarded UK subsidiary companies and the hybrid mismatch regime

 

We have a client operating in the global investment management industry. Its main presence is in the US but it has a London based team employed by a UK subsidiary. A fee is paid by the US parent business to the UK subsidiary by way of arm’s length reward for the contribution of the UK team to the group’s business. The client has heard that there may be a problem under the UK’s new hybrid mismatch regime introduced by FA 2016 because the UK subsidiary is a ‘disregarded entity’ for US federal tax purposes. The US tax treatment of the subsidiary has never been considered relevant to its UK tax affairs before. How are the hybrid mismatch rules relevant ...