Source: http://www.legislation.gov.uk/ukpga/2016/24/schedule/10/paragraph/1/enacted
Timestamp: 2018-04-23 11:52:02
Document Index: 689129062

Matched Legal Cases: ['art 6', 'ART 6', 'art 9', 'art 9', 'art 7', 'art 10', 'art 4', 'art 7', 'art 3', 'art 10', 'art 9', 'art 5', 'art 7', 'art 16', 'art 4', 'art 17']

1In TIOPA 2010, after Part 6 insert—
“PART 6AHybrid and other mismatches
259AOverview of Part
(1)This Part has effect for the purposes of counteracting certain cases that it is reasonable to suppose would otherwise give rise to—
(a)a deduction/non-inclusion mismatch, or
(b)a double deduction mismatch.
(2)A deduction/non-inclusion mismatch arises where an amount is deductible from a person’s income—
(a)without a corresponding amount of ordinary income arising to another person, or
(b)where an amount of ordinary income does arise to a person but is under taxed.
(3)A double deduction mismatch arises where—
(a)an amount is deductible from more than one person’s income, or
(b)an amount is deductible from a person’s income for the purposes of more than one tax.
(4)The cases with which this Part is concerned involve—
(a)payments or quasi-payments under or in connection with financial instruments or repos, stock lending arrangements or other transfers of financial instruments,
(b)hybrid entities,
(c)companies with permanent establishments, or
(d)dual resident companies.
(5)This Part counteracts mismatches that would otherwise arise by making certain adjustments to a person’s treatment for corporation tax purposes.
(6)Chapter 2 contains some key definitions for the purposes of this Part, see in particular—
(a)section 259B which provides that “tax” means income tax, corporation tax on income, the diverted profits tax, the CFC charge, foreign tax or a foreign CFC charge,
(b)section 259BB which defines “payment”, “quasi-payment”, “payment period”, “relevant deduction”, “payer”, “payee”, and “payee jurisdiction”,
(c)section 259BC which defines “ordinary income” and “taxable profits”, in relation to taxes other than the CFC charge and foreign CFC charges,
(d)section 259BD which contains corresponding provision for the CFC charge and foreign CFC charges,
(e)section 259BE which defines “hybrid entity” and other related terms, and
(f)section 259BF which defines “permanent establishment”.
(7)Chapter 3 contains provision for the counteraction of certain deduction/non-inclusion mismatches arising from payments or quasi-payments under, or in connection with, financial instruments.
(8)Chapter 4 contains provision for the counteraction of certain deduction/non-inclusion mismatches arising from payments or quasi-payments and involving certain repos, stock lending arrangements or other arrangements for, or relating to, transfers of financial instruments.
(9)Chapter 5 contains provision for the counteraction of certain deduction/non-inclusion mismatches arising from payments or quasi-payments in relation to which the payer is a hybrid entity.
(10)Chapter 6 contains provision for the counteraction of certain deduction/non-inclusion mismatches arising in relation to internal transfers of money or money’s worth made, or treated as made, by a multinational company’s permanent establishment in the United Kingdom to the territory in which the company is resident for tax purposes.
(11)Chapter 7 contains provision for the counteraction of certain deduction/non-inclusion mismatches arising from payments or quasi-payments in relation to which a payee is a hybrid entity.
(12)Chapter 8 contains provision for the counteraction of certain deduction/non-inclusion mismatches arising from payments or quasi-payments in relation to which a payee is a multinational company.
(13)Chapter 9 contains provision for the counteraction of certain double deduction mismatches arising from a company being a hybrid entity.
(14)Chapter 10 contains provision for the counteraction of certain double deduction mismatches involving dual resident companies or relevant multinational companies.
(15)Chapter 11 contains provision about imported mismatches.
(16)Chapter 12 contains provision—
(a)for adjustments to be made where a reasonable supposition made for the purposes of this Part turns out to be mistaken or otherwise ceases to be reasonable, and
(b)for deductions from taxable total profits to be made where a relevant deduction has been denied under certain provisions of this Part and amounts of ordinary income arise later than is permitted.
(17)Chapter 13 contains anti-avoidance provision.
(18)Chapter 14 contains definitions and other provision about the interpretation of this Part.
(19)Each of Chapters 3 to 10 contains provision specifying that some or all of this Part (and any corresponding provision under the law of a territory outside the United Kingdom) is to be disregarded when determining whether a mismatch arises for the purposes of that Chapter and, if so, in what amount, see—
(a)section 259CA(4) and (5),
(b)section 259DA(5),
(c)section 259EA(5) and (6),
(d)section 259FA(4), (5) and (6),
(e)section 259GA(5) and (6),
(f)section 259HA(6) and (7),
(g)section 259IA(2) and (3), and
(h)section 259JA(5).
(20)The effect of the provisions mentioned in subsection (19) is that Chapters 3 to 10 (or any corresponding provision under the law of a territory outside the United Kingdom) have effect in the following sequence—
(a)Chapter 4,
(c)Chapter 5,
(d)Chapter 6,
(e)Chapter 7,
(f)Chapter 8,
(g)Chapter 9, and
(h)Chapter 10.
Meaning of “tax”
259B“Tax” means certain taxes on income and includes foreign tax etc
(1)In this Part “tax” means—
(b)the charge to corporation tax on income,
(c)diverted profits tax,
(d)the CFC charge,
(e)foreign tax, or
(f)a foreign CFC charge.
(2)In subsection (1) “foreign tax” means a tax chargeable under the law of a territory outside the United Kingdom so far as it—
(b)is charged on income and corresponds to the United Kingdom charge to corporation tax on income.
(3)A tax is not outside the scope of subsection (2) by reason only that it—
“CFC” and “the CFC charge” have the same meaning as in Part 9A (see section 371VA);
“foreign CFC charge” means a charge (by whatever name known) under the law of a territory outside the United Kingdom which is similar to the CFC charge (and reference to a “foreign CFC” is to be read accordingly).
Equivalent provision to this Part under foreign law
259BAReferences to equivalent provision to this Part under the law of a territory outside the United Kingdom
(1)A reference in this Part to provision under the law of a territory outside the United Kingdom that is equivalent to—
(b)a provision of this Part,
is to be read in accordance with subsection (2).
(2)The reference is to provision under the law of a territory outside the United Kingdom that it is reasonable to suppose—
(a)is based on the Final Report on Neutralising the Effects of Hybrid Mismatch Arrangements published by the Organisation for Economic Cooperation and Development (“OECD”) on 5 October 2015 or any replacement or supplementary publication, and
(b)has effect for the same, or similar, purposes to this Part or (as the case may be) the provision of this Part.
(3)In paragraph (a) of subsection (2) “replacement or supplementary publication” means any document that is approved and published by the OECD in place of, or to update or supplement, the report mentioned in that paragraph (or any replacement of, or supplement to, it).
259BBMeaning of “payment”, “quasi-payment”, “payer”, “payee” etc
(a)of money or money’s worth directly or indirectly from one person (“the payer”) to one or more other persons, and
(b)in relation to which (disregarding this Part and any equivalent provision under the law of a territory outside the United Kingdom) an amount (a “relevant deduction”) may be deducted from the payer’s income for a taxable period (the “payment period”) for the purposes of calculating the payer’s taxable profits.
(a)an amount (a “relevant deduction”) may be deducted from the payer’s income for that period for the purposes of calculating the payer’s taxable profits, and
(b)the payee has a permanent establishment.
259BCThe basic rules
(3)But an amount of income is not brought into account for those purposes to the extent that it is excluded, reduced or offset by any exemption, exclusion, relief or credit—
(a)that applies specifically to all or part of the amount of income (as opposed to ordinary income generally), or
(b)that arises as a result of, or otherwise in connection with, a payment or quasi-payment that gives rise to the amount of income.
(10)Section 259BD contains provision for ordinary income to arise to chargeable companies by virtue of the CFC charge or a foreign CFC charge.
259BDChargeable companies in respect of CFCs and foreign CFCs
(2)Subsections (3) to (7) apply where an amount of income arises to an entity (“C”) that is a CFC, a foreign CFC or both and all or part of that amount (the “relevant income”)—
(a)is not ordinary income of C under section 259BC, or
(b)arises as a result of a payment or quasi-payment under, or in connection with, a financial instrument or hybrid transfer arrangement and—
(i)is (disregarding subsection (4)) ordinary income of C under section 259BC for a taxable period, but
(ii)under taxed.
(3)The following steps determine whether, and to what extent, the relevant income is “ordinary income” of a chargeable company in relation to the CFC charge or a foreign CFC charge.
whether any of the relevant income is brought into account in calculating C’s chargeable profits for the purposes of the CFC charge or a foreign CFC charge, and
if so, the amount of the relevant income that is so brought into account for the purposes of each relevant charge.
If none of the relevant income is so brought into account, then none of it is “ordinary income” of a chargeable company and no further steps are to be taken.
See subsections (10) to (12) for further provision about how this step is to be taken.
“relevant chargeable profits” are chargeable profits in relation to the calculation of which, for the purposes of the CFC charge or a foreign CFC charge, any of the relevant income is brought into account;
“relevant charge” means a charge in relation to which any of the relevant income is brought into account in calculating chargeable profits.
In relation to each relevant charge, determine the proportion of C’s relevant chargeable profits, for the purposes of that charge, that is apportioned to each chargeable company.
For the purposes of this section, each chargeable company to which 25% or more of C’s relevant chargeable profits for the purposes of a relevant charge are apportioned is a “relevant chargeable company”.
If there are no relevant chargeable companies in relation to any relevant charges, then none of the relevant income is “ordinary income” of a chargeable company and no further steps are to be taken.
In relation to each relevant chargeable company, determine what is the appropriate proportion of the relevant income brought into account in calculating relevant chargeable profits, for the purposes of the relevant charge concerned.
That proportion of that income is “ordinary income” of that company for the taxable period for which that charge is charged on it by reference to those profits.
For the purposes of this step, the “appropriate proportion”, in relation to a relevant chargeable company, is the same as the proportion of the relevant chargeable profits that is apportioned to it for the purposes of the relevant charge.
(4)An amount of relevant income that is ordinary income of a relevant chargeable company in accordance with subsection (3) is not ordinary income of C (so far as it otherwise would be).
(5)Relevant chargeable profits apportioned to a relevant chargeable company for the purposes of a relevant charge are “taxable profits” of that company for the taxable period for which the charge is charged on it by reference to those profits.
(6)The amount of the relevant income that is ordinary income of that relevant chargeable company under subsection (3), by virtue of being brought into account in calculating those relevant chargeable profits, is “included in” those taxable profits.
(7)References to tax charged on taxable profits include a relevant charge charged by reference to relevant chargeable profits that are taxable profits under subsection (5).
(8)For the purposes of subsection (2)(b), an amount of ordinary income is “under taxed” if the highest rate at which tax is charged, for C’s taxable period, on the taxable profits in which the amount is included, taking into account on a just and reasonable basis any credit for underlying tax, is less than C’s full marginal rate for that period.
(a)C’s “full marginal rate” means the highest rate at which the tax that is chargeable on those taxable profits could be charged on taxable profits, of C for the taxable period, which include ordinary income that arises from, or in connection with, a financial instrument, and
(b)“credit for underlying tax” means a credit or relief given to reflect tax charged on profits that are wholly or partly used to fund (directly or indirectly) the payment or quasi-payment mentioned in subsection (2)(b).
(10)For the purposes of step 1 in subsection (3), section 259BC(3) applies for the purposes of determining the extent to which an amount of relevant income is brought into account in calculating chargeable profits as it applies for the purposes of determining the extent to which an amount of income is brought into account for the purposes of calculating taxable profits.
(11)Subsection (12) applies for the purposes of step 1 in subsection (3), if—
(a)the amount of income arising to C mentioned in subsection (2)—
(i)is not all relevant income, and
(ii)is only partly brought into account in calculating chargeable profits for the purposes of the CFC charge or a foreign CFC charge, and
(b)accordingly, it falls to be determined whether, and to what extent, the relevant income is brought into account in calculating those profits for the purposes of the charge concerned.
(12)The relevant income is to be taken to be brought into account (if at all) only to the extent that the total amount of income mentioned in subsection (2) that is brought into account exceeds the amount of income mentioned in that subsection that is not relevant income.
“chargeable company”—
in relation to the CFC charge, has the same meaning as in Part 9A (see section 371VA), and
in relation to a foreign CFC charge, means an entity (by whatever name known) corresponding to a chargeable company within the meaning of that Part;
“chargeable profits”—
in relation to the CFC charge, has the same meaning as in that Part (see that section), and
in relation to a foreign CFC charge, means the concept (by whatever name known) corresponding to chargeable profits within the meaning of that Part;
“hybrid transfer arrangement” has the meaning given by section 259DB.
259BEMeaning of “hybrid entity”, “investor” and “investor jurisdiction”
(a)some or all of the entity’s income or profits are treated (or would be if there were any) for the purposes of a tax charged under the law of any territory, as the income or profits of a person or persons other than the person mentioned in subsection (2), or
(c)any territory under the law of which an investor is within the charge to a tax is an “investor jurisdiction” in relation to that investor.
259BFMeaning of “permanent establishment”
(1)In this Part “permanent establishment” means anything that is—
(a)a permanent establishment of a company within the meaning of the Corporation Tax Acts (see section 1119 of CTA 2010), or
(b)within any similar concept under the law of a territory outside the United Kingdom.
(2)A concept is not outside the scope of subsection (1)(b) by reason only that it is not based on Article 5 of a Model Tax Convention on Income and Capital published by the Organisation for Economic Cooperation and Development.
CHAPTER 3Hybrid and other mismatches from financial instruments
259COverview of Chapter
(1)This Chapter contains provision that counteracts hybrid or otherwise impermissible deduction/non-inclusion mismatches that it is reasonable to suppose would otherwise arise from payments or quasi-payments under, or in connection with, financial instruments.
(3)Section 259CA contains the conditions that must be met for this Chapter to apply.
(4)Section 259CB defines “hybrid or otherwise impermissible deduction/non-inclusion mismatch” and provides how the amount of the mismatch is to be calculated.
(5)Section 259CC contains definitions of certain terms used in section 259CB.
(6)Section 259CD contains provision that counteracts the mismatch where the payer is within the charge to corporation tax for the payment period.
(7)Section 259CE contains provision that counteracts the mismatch where a payee is within the charge to corporation tax and neither section 259CD nor any equivalent provision under the law of a territory outside the United Kingdom fully counteracts the mismatch.
(b)section 259N for the meaning of “financial instrument”.
259CACircumstances in which the Chapter applies
(9)Sections 259CD (cases where the payer is within the charge to corporation tax for the payment period) and 259CE (cases where a payee is within the charge to corporation tax) contain provision for the counteraction of the hybrid or otherwise impermissible deduction/non-inclusion mismatch.
259CBHybrid or otherwise impermissible deduction/non-inclusion mismatches and their extent
(e)Part 7 (tax treatment of financing costs and income).
“FMR” is the payee’s full marginal rate (expressed as a percentage) for the permitted taxable period for which the under-taxed amount arises;
(13)See section 259CC for the meaning of “permitted taxable period”, “relevant debt relief provision” and “under taxed”.
259CCInterpretation of section 259CB
(1)This section has effect for the purposes of section 259CB.
(2)A taxable period of a payee is “permitted” in relation to an amount of ordinary income that arises as a result of the payment or quasi-payment if—
(a)the period begins before the end of 12 months after the end of the payment period, or
(3)Each of these is a “relevant debt relief provision”—
(a)section 322 of CTA 2009 (release of debts: cases where credits not required to be brought into account),
(b)section 357 of that Act (insolvent creditors),
(c)section 358 of that Act (exclusion of credits on release of connected companies’ debts: general),
(d)section 359 of that Act (exclusion of credits on release of connected companies’ debts during creditor’s insolvency),
(e)section 361C of that Act (the equity-for-debt exception),
(f)section 361D of that Act (corporate rescue: debt released shortly after acquisition), and
(g)section 362A of that Act (corporate rescue: debt released shortly after connection arises).
(4)An amount of ordinary income of a payee, for a permitted taxable period, is “under taxed” if the highest rate at which tax is charged on the taxable profits of the payee in which the amount is included, taking into account on a just and reasonable basis the effect of any credit for underlying tax, is less than the payee’s full marginal rate for that period.
(5)The payee’s “full marginal rate” means the highest rate at which the tax that is chargeable on the taxable profits mentioned in subsection (4) could be charged on taxable profits, of the payee for the permitted taxable period, which include ordinary income that arises from, or in connection with, a financial instrument.
(6)A “credit for underlying tax” means a credit or relief given to reflect tax charged on profits that are wholly or partly used to fund (directly or indirectly) the payment or quasi-payment.
259CDCounteraction where the payer is within the charge to corporation tax for the payment period
(2)For corporation tax purposes, the relevant deduction that may be deducted from the payer’s income for the payment period is reduced by an amount equal to the hybrid or otherwise impermissible deduction/non-inclusion mismatch mentioned in section 259CA(4).
259CECounteraction where a payee is within the charge to corporation tax
(1)This section applies in relation to a payee where—
(a)the payee is within the charge to corporation tax for an accounting period some or all of which falls within the payment period, and
(i)neither section 259CD nor any equivalent provision under the law of a territory outside the United Kingdom applies, or
(ii)a provision of the law of a territory outside the United Kingdom that is equivalent to section 259CD applies, but does not fully counteract the hybrid or otherwise impermissible deduction/non-inclusion mismatch mentioned in section 259CA(4).
(2)A provision of the law of a territory outside the United Kingdom that is equivalent to section 259CD does not fully counteract that mismatch if (and only if)—
(a)in a case where subsection (1)(b)(i) applies, an amount equal to the hybrid or otherwise impermissible deduction/non-inclusion mismatch mentioned in section 259CA(4), or
(i)the amount by which that mismatch exceeds the amount by which it is reasonable to suppose the relevant deduction is reduced by a provision under the law of a territory outside the United Kingdom that is equivalent to section 259CD, and
(4)If the payee is the only payee, the relevant amount is to be treated as income arising to the payee for the counteraction period.
(5)If there is more than one payee, an amount equal to the payee’s share of the relevant amount is to be treated as income arising to the payee for the counteraction period.
(6)The payee’s share of the relevant amount is to be determined by apportioning that amount between all the payees on a just and reasonable basis, having regard (in particular)—
(a)to any arrangements as to profit sharing that may exist between some or all of the payees,
(b)to whom any under-taxed amounts (within the meaning given by section 259CB(7)) arise, and
(c)to whom any amounts of ordinary income that it would be reasonable to expect to arise as a result of the payment or quasi-payment, but that do not arise, would have arisen.
(7)An amount of income that is treated as arising under subsection (4) or (5) is chargeable under Chapter 8 of Part 10 of CTA 2009 (income not otherwise charged) (despite section 979(2) of that Act).
(8)The “counteraction period” means—
(a)if an accounting period of the payee coincides with the payment period, that accounting period, or
(b)otherwise, the first accounting period of the payee that is wholly or partly within the payment period.
CHAPTER 4Hybrid transfer deduction/non-inclusion mismatches
259DOverview of Chapter
(1)This Chapter contains provision that counteracts deduction/non-inclusion mismatches that it is reasonable to suppose would otherwise arise from payments or quasi-payments as a consequence of hybrid transfer arrangements.
(3)Section 259DA contains the conditions that must be met for this Chapter to apply.
(4)Section 259DB defines “hybrid transfer arrangement”.
(5)Section 259DC defines “hybrid transfer deduction/non-inclusion mismatch” and provides how the amount of the mismatch is to be calculated.
(6)Section 259DD contains definitions of certain terms used in section 259DC.
(7)Section 259DE contains provision in connection with excluding mismatches from counteraction by the Chapter where they arise as a consequence of the tax treatment of a financial trader.
(8)Section 259DF contains provision that counteracts the mismatch where the payer is within the charge to corporation tax for the payment period.
(9)Section 259DG contains provision that counteracts the mismatch where a payee is within the charge to corporation tax and neither section 259DF nor any equivalent provision under the law of a territory outside the United Kingdom fully counteracts the mismatch.
(10)See also section 259BB for the meaning of “payment”, “quasi-payment”, “payment period”, “relevant deduction”, “payer” and “payee”.
259DACircumstances in which the Chapter applies
(1)This Chapter applies if conditions A to E are met.
(2)Condition A is that there is a hybrid transfer arrangement in relation to an underlying instrument (see section 259DB).
(3)Condition B is that a payment or quasi-payment is made under or in connection with—
(a)the hybrid transfer arrangement, or
(b)the underlying instrument.
(5)Condition D is that it is reasonable to suppose that, disregarding this Part and any equivalent provision under the law of a territory outside the United Kingdom, there would be a hybrid transfer deduction/non-inclusion mismatch in relation to the payment or quasi-payment (see section 259DC).
(a)it is a quasi-payment that is made as mentioned in subsection (3) and the payer is also a payee (see section 259BB(7)),
(i)beginning with the day on which the hybrid transfer arrangement is made, and
(c)the hybrid transfer arrangement is a structured arrangement.
(7)The hybrid transfer arrangement is a “structured arrangement” if it is reasonable to suppose that—
(a)the hybrid transfer arrangement is designed to secure a hybrid transfer deduction/non-inclusion mismatch, or
(b)the terms of the hybrid transfer arrangement share the economic benefit of the mismatch between the parties to the arrangement or otherwise reflect the fact that the mismatch is expected to arise.
(8)The hybrid transfer arrangement may be designed to secure a hybrid transfer deduction/non-inclusion mismatch despite also being designed to secure any commercial or other objective.
(9)Sections 259DF (cases where the payer is within the charge to corporation tax for the payment period) and 259DG (cases where a payee is within the charge to corporation tax) make provision for the counteraction of the hybrid transfer deduction/non-inclusion mismatch.
259DBMeaning of “hybrid transfer arrangement”, “underlying instrument” etc
(2)A “hybrid transfer arrangement” means—
(a)a repo,
(b)a stock lending arrangement, or
(c)any other arrangement,
that is an arrangement within subsection (3).
(3)An arrangement is within this subsection if it provides for, or relates to, the transfer of a financial instrument (“the underlying instrument”) and—
(a)the dual treatment condition is met in relation to the arrangement, or
(b)a substitute payment could be made under the arrangement.
(4)The dual treatment condition is met in relation to the arrangement if—
(a)in relation to a person, for the purposes of a tax—
(i)the arrangement is regarded as equivalent, in substance, to a transaction for the lending of money at interest, and
(ii)a payment or quasi-payment made under, or in connection with, the arrangement or the underlying instrument could be treated so as to reflect the fact the arrangement is so regarded, and
(b)in relation to another person, for the purposes of a tax (whether or not the same one), such a payment or quasi-payment would not be treated so as to reflect the arrangement being regarded as equivalent, in substance, to a transaction for the lending of money at interest.
(5)A payment or quasi-payment is a “substitute payment” if—
(a)it consists of or involves—
(i)an amount being paid, or
(ii)a benefit being given (including the release of the whole or part of any liability to pay an amount),
(b)that amount, or the value of that benefit, is representative of a return of any kind (“the underlying return”) that arises on, or in connection with, the underlying instrument, and
(c)the amount is paid, or the benefit is given, to someone other than the person to whom the underlying return arises.
(6)For the purposes of subsection (3) where there is an arrangement, to which a person (“P”) and another person (“Q”) are party, under which—
(a)a financial instrument (“the first instrument”) ceases to be owned by P (whether or not because it ceases to exist), and
(b)Q comes to own a financial instrument (“the second instrument”) under which Q has the same, or substantially the same, rights and liabilities as P had under the first instrument,
the second instrument is to be treated as being transferred from P to Q.
259DCHybrid transfer deduction/non-inclusion mismatches and their extent
(1)There is a “hybrid transfer deduction/non-inclusion mismatch”, in relation to a payment or quasi-payment, if either or both of case 1 or 2 applies.
(b)all or part of that excess arises for a reason mentioned in subsection (8).
(3)Subject to subsection (9), for the purposes of subsection (2)(b)—
(a)it does not matter whether the excess or part arises for another reason as well (even if it would have arisen for that other reason regardless of any reasons mentioned in subsection (8)), and
(b)an excess or part of an excess is to be taken to arise for a reason mentioned in subsection (8) (so far as would not otherwise be the case) if, on making such of the relevant assumptions in relation to each payee as apply in relation to that payee (see subsections (4) and (5))), it could arise for a reason mentioned in subsection (8).
(4)These are the “relevant assumptions”—
(5)Where the relevant assumption in subsection (4)(c) applies in relation to a payee the following provisions are to be disregarded in relation to that payee for the purposes of subsection (3)(b)—
(b)Part 4 (transfer pricing);
(c)this Part;
(d)Part 7 (tax treatment of financing costs and income).
(6)Case 2 applies where there are one or more amounts of ordinary income (“under-taxed amounts”) that—
(b)are under taxed for a reason mentioned in subsection (8).
(7)Subject to subsection (9), for the purposes of subsection (6)(b) it does not matter whether an amount of ordinary income is under taxed for another reason as well (even if it would have been under taxed for that other reason regardless of any reason mentioned in subsection (8)).
(8)The reasons are—
(a)the dual treatment condition being met in relation to a hybrid transfer arrangement under, or in connection with, which the payment or quasi-payment is made (see section 259DB(4));
(b)the payment or quasi-payment being a substitute payment.
(9)For the purposes of this section, disregard—
in relation to which the financial trader exclusion applies (see section 259DE) or that arises as a result of a payee being a relevant investment fund (see section 259NA).
(10)Where case 1 applies, the amount of the hybrid transfer deduction/non-inclusion mismatch is equal to the excess that arises as mentioned in subsection (2)(b).
(11)Where case 2 applies, the amount of the hybrid transfer deduction/non-inclusion mismatch is equal to the sum of the amounts given in respect of each under-taxed amount by—
(12)Where cases 1 and 2 both apply, the amount of the hybrid transfer deduction/non-inclusion mismatch is the sum of the amounts given by subsections (10) and (11).
(13)See section 259DD for the meaning of “permitted taxable period” and “under taxed”.
259DDInterpretation of section 259DC
(1)This section has effect for the purposes of section 259DC.
(3)An amount of ordinary income of a payee, for a permitted taxable period, is “under taxed” if the highest rate at which tax is charged on the taxable profits of the payee in which the amount is included, taking into account on a just and reasonable basis the effect of any credit for underlying tax, is less than the payee’s full marginal rate for that period.
(4)The payee’s “full marginal rate” means the highest rate at which the tax that is chargeable on the taxable profits mentioned in subsection (3) could be charged on taxable profits, of the payee for the permitted taxable period, which include ordinary income that arises from, or in connection with, a financial instrument.
(5)A “credit for underlying tax” means a credit or relief given to reflect tax charged on profits that are wholly or partly used to fund (directly or indirectly) the payment or quasi-payment.
259DEThe financial trader exclusion
(1)This section has effect for the purposes of section 259DC(9).
(2)The financial trader exclusion applies, in relation to an excess or part of an excess mentioned in section 259DC(2) or an under-taxed amount, where conditions A to C are met.
(3)Condition A is that the excess or part arises, or the under-taxed amount is under taxed, because the payment or quasi-payment—
(a)is a substitute payment,
(b)is treated, for the purposes of tax charged on a person, so as to reflect the fact that it is representative of the underlying return, and
(c)is brought into account by another person (“the financial trader”) in calculating the profits of a trade under—
(i)Part 3 of CTA 2009 (trading income), or
(ii)an equivalent provision of the law of a territory outside the United Kingdom.
(4)Condition B is that the financial trader also brings any associated payments into account as mentioned in subsection (3)(c).
(5)In subsection (4) “associated payment” means a payment or quasi-payment—
(a)in relation to which the financial trader is the payer or a payee, and
(b)that is made under, or in connection with, the underlying instrument or an arrangement that relates to the underlying instrument.
(a)if the underlying return were to arise, and be paid directly, to the payee or payees in relation to the substitute payment, neither Chapter 3 (hybrid and other mismatches from financial instruments) nor any equivalent provision under the law of a territory outside the United Kingdom would apply, and
(b)the hybrid transfer arrangement under, or in connection with, which the substitute payment is made is not a structured arrangement (within the meaning given by section 259DA(7) and (8)).
259DFCounteraction where the payer is within the charge to corporation tax for the payment period
(2)For corporation tax purposes, the relevant deduction that may be deducted from the payer’s income for the payment period is reduced by an amount equal to the hybrid transfer deduction/non-inclusion mismatch mentioned in section 259DA(5).
259DGCounteraction where a payee is within the charge to corporation tax
(i)neither section 259DF nor any equivalent provision under the law of a territory outside the United Kingdom applies, or
(ii)a provision of the law of a territory outside the United Kingdom that is equivalent to section 259DF applies, but does not fully counteract the hybrid transfer deduction/non-inclusion mismatch mentioned in section 259DA(5).
(2)A provision of the law of a territory outside the United Kingdom that is equivalent to section 259DF does not fully counteract that mismatch if (and only if)—
(a)in a case where subsection (1)(b)(i) applies, an amount equal to the hybrid transfer deduction/non-inclusion mismatch mentioned in section 259DA(5), or
(i)the amount by which that mismatch exceeds the amount by which it is reasonable to suppose the relevant deduction is reduced by a provision under the law of a territory outside the United Kingdom that is equivalent to section 259DF, and
(b)to whom any under-taxed amounts (within the meaning given by section 259DC(6)) arise, and
CHAPTER 5Hybrid payer deduction/non-inclusion mismatches
259EOverview of Chapter
(b)section 259BE for the meaning of “hybrid entity”, “investor” and “investor jurisdiction”.
259EACircumstances in which the Chapter applies
(2)Condition A is that a payment or quasi-payment is made under, or in connection with, an arrangement.
(3)Condition B is that the payer is a hybrid entity (“the hybrid payer”).
(a)the hybrid payer is within the charge to corporation tax for the payment period, or
(5)Condition D is that it is reasonable to suppose that, disregarding the provisions mentioned in subsection (6), there would be a hybrid payer deduction/non-inclusion mismatch in relation to the payment or quasi-payment (see section 259EB).
(a)this Chapter and Chapters 6 to 10, and
(a)it is a quasi-payment that is made as mentioned in subsection (2) and the hybrid payer is also a payee (see section 259BB(7)),
(b)the hybrid payer and a payee are in the same control group (see section 259NB) at any time in the period—
(i)beginning with the day on which the arrangement mentioned in subsection (2) is made, and
(c)that arrangement is a structured arrangement.
(8)The arrangement is “structured” if it is reasonable to suppose that—
(a)the arrangement is designed to secure a hybrid payer deduction/non-inclusion mismatch, or
(b)the terms of the arrangement share the economic benefit of the mismatch between the parties to the arrangement or otherwise reflect the fact that the mismatch is expected to arise.
(9)The arrangement may be designed to secure a hybrid payer deduction/non-inclusion mismatch despite also being designed to secure any commercial or other objective.
(10)Sections 259EC (cases where the hybrid payer is within the charge to corporation tax for the payment period) and 259ED (cases where a payee is within the charge to corporation tax) contain provision for the counteraction of the hybrid payer deduction/non-inclusion mismatch.
259EBHybrid payer deduction/non-inclusion mismatches and their extent
(1)There is a “hybrid payer deduction/non-inclusion mismatch”, in relation to a payment or quasi-payment, if—
(b)all or part of that excess arises by reason of the hybrid payer being a hybrid entity.
(2)The amount of the hybrid payer deduction/non-inclusion mismatch is equal to the excess that arises as mentioned in subsection (1)(b).
(a)it does not matter whether the excess or part arises for another reason as well (even if it would have arisen for that other reason regardless of whether the hybrid payer is a hybrid entity), and
(b)an excess or part of an excess is to be taken to arise by reason of the hybrid payer being a hybrid entity (so far as would not otherwise be the case) if, on making such of the relevant assumptions in relation to each payee as apply in relation to that payee (see subsection (4)), it could arise by reason of the hybrid payer being a hybrid entity.
(b)where an amount of income is not included in the ordinary income of a payee for the purposes of a tax charged under the law of a payee jurisdiction because the payment or quasi-payment is not made in connection with a business carried on by the payee in that jurisdiction, assume that the payment or quasi-payment is made in connection with such a business.
(5)A taxable period of a payee is “permitted” in relation to an amount of ordinary income that arises as a result of the payment or quasi-payment if—
259ECCounteraction where the hybrid payer is within the charge to corporation tax for the payment period
(1)This section applies where the hybrid payer is within the charge to corporation tax for the payment period.
(2)For corporation tax purposes, the relevant deduction so far as it does not exceed the hybrid payer deduction/non-inclusion mismatch mentioned in section 259EA(5) (“the restricted deduction”) may not be deducted from the hybrid payer’s income for the payment period unless it is deducted from dual inclusion income for that period.
(3)So much of the restricted deduction (if any) as, by virtue of subsection (2), cannot be deducted from the payer’s income for the payment period—
(a)is carried forward to subsequent accounting periods of the payer, and
(b)for corporation tax purposes, may be deducted from dual inclusion income for any such period (and not from any other income), so far as it cannot be deducted under this paragraph for an earlier period.
(4)In this section “dual inclusion income” of the payer for an accounting period means an amount that arises in connection with the arrangement mentioned in section 259EA(2) and is both—
(a)ordinary income of the payer for that period for corporation tax purposes, and
(b)ordinary income of an investor in the payer for a permitted taxable period for the purposes of any tax charged under the law of an investor jurisdiction.
(5)A taxable period of an investor is “permitted” for the purposes of paragraph (b) of subsection (4) if—
(a)the period begins before the end of 12 months after the end of the accounting period mentioned in paragraph (a) of that subsection, or
259EDCounteraction where a payee is within the charge to corporation tax
(i)no provision under the law of a territory outside the United Kingdom that is equivalent to section 259EC applies, or
(ii)such a provision does apply, but does not fully counteract the hybrid payer deduction/non-inclusion mismatch mentioned in section 259EA(5).
(2)A provision of the law of a territory outside the United Kingdom that is equivalent to section 259EC does not fully counteract that mismatch if (and only if)—
(a)the amount of the relevant deduction that the provision prevents from being deducted from income of the hybrid payer, for the payment period, other than dual inclusion income, is less than the amount of the mismatch, and
(b)the hybrid payer is still able to deduct some of the relevant deduction from income, for the payment period, that is not dual inclusion income.
(a)in a case where subsection (1)(b)(i) applies, an amount equal to the hybrid payer deduction/non-inclusion mismatch mentioned in section 259EA(5), or
(i)the amount by which that mismatch exceeds the amount of the relevant deduction that it is reasonable to suppose is prevented, by a provision of the law of a territory outside the United Kingdom that is equivalent to section 259EC, from being deducted from income of the hybrid payer, for the payment period, other than dual inclusion income, and
(4)If the payee is the only payee, an amount equal to—
(a)the relevant amount, less
(b)any dual inclusion income,
is to be treated as income arising to the payee for the counteraction period.
(5)If there is more than one payee, an amount equal to—
(a)the payee’s share of the relevant amount, less
(b)the relevant proportion of any dual inclusion income,
(a)to any arrangements as to profit sharing that may exist between some or all of the payees, and
(b)to whom any amounts of ordinary income that it would be reasonable to expect to arise as a result of the payment or quasi-payment, but that do not arise, would have arisen.
(7)The “relevant” proportion of any dual inclusion income for the payment period is the same as the proportion of the relevant amount apportioned to the payee in accordance with subsection (6).
(8)An amount of income that is treated as arising under subsection (4) or (5) is chargeable under Chapter 8 of Part 10 of CTA 2009 (income not otherwise charged) (despite section 979(2) of that Act).
“counteraction period” means—
if an accounting period of the payee coincides with the payment period, that accounting period, or
otherwise, the first accounting period of the payee that is wholly or partly within the payment period;
“dual inclusion income” means an amount that arises in connection with the arrangement mentioned in section 259EA(2) and is both—
ordinary income of the payer for the payment period, and
ordinary income of an investor in the payer for a permitted taxable period for the purposes of a tax charged under the law of an investor jurisdiction.
(10)A taxable period of an investor is “permitted” for the purposes of subsection (9) if—
CHAPTER 6Deduction/non-inclusion mismatches relating to transfers by permanent establishments
259FOverview of Chapter
(1)This Chapter contains provision that counteracts certain excessive deductions that arise in relation to transfers of money or money’s worth made, or taken to be made, by a multinational company’s permanent establishment in the United Kingdom to the company in the parent jurisdiction.
(2)The Chapter counteracts such deductions by altering the corporation tax treatment of the company.
(3)Section 259FA contains the conditions that must be met for this Chapter to apply.
(4)Subsection (3) of that section defines “multinational company” and “the parent jurisdiction”.
(5)Subsection (8) of that section defines “the excessive PE deduction”.
(6)Section 259FB contains provision for the counteraction of the excessive PE deduction.
(7)See also section 259BF for the meaning of “permanent establishment”.
259FACircumstances in which the Chapter applies
(2)Condition A is that a company is a multinational company.
(3)For the purposes of this Chapter, a company is a multinational company if—
(a)it is resident in a territory outside the United Kingdom (“the parent jurisdiction”) for the purposes of a tax charged under the law of that territory, and
(b)it is within the charge to corporation tax because it carries on a business in the United Kingdom through a permanent establishment in the United Kingdom.
(4)Condition B is that, disregarding the provisions mentioned in subsection (5), there is an amount (“the PE deduction”) that—
(a)may (in substance) be deducted from the company’s income for the purposes of calculating the company’s taxable profits for an accounting period (“the relevant PE period”) for corporation tax purposes, and
(b)is in respect of a transfer of money or money’s worth from the company in the United Kingdom to the company in the parent jurisdiction that—
(i)is actually made, or
(ii)is (in substance) treated as being made for corporation tax purposes.
(a)this Chapter and Chapters 7 to 10, and
(6)Condition C is that it is reasonable to suppose that, disregarding the provisions mentioned in subsection (5)—
(a)the circumstances giving rise to the PE deduction will not result in—
(i)an increase in the taxable profits of the company for any permitted taxable period, or
(ii)a reduction of a loss made by the company for any permitted taxable period,
for the purposes of a tax charged under the law of the parent jurisdiction, or
(b)those circumstances will result in such an increase or reduction for one or more permitted taxable periods, but the PE deduction exceeds the aggregate effect on taxable profits.
(7)“The aggregate effect on taxable profits” is the sum of—
(a)any increases, resulting from the circumstances giving rise to the PE deduction, in the taxable profits of the company, for a permitted taxable period, for the purposes of a tax charged under the law of the parent jurisdiction, and
(b)any amounts by which a loss made by the company, for a permitted taxable period, for the purposes of a tax charged under the law of the parent jurisdiction, is reduced as a result of the circumstances giving rise to the PE deduction.
(8)In this Chapter “the excessive PE deduction” means—
(a)where paragraph (a) of subsection (6) applies, the PE deduction, or
(b)where paragraph (b) of subsection (6) applies, the PE deduction so far as it is reasonable to suppose that it exceeds the aggregate effect on taxable profits.
(9)For the purposes of subsections (6) and (7) a taxable period of the company, for the purposes of a tax charged under the law of the parent jurisdiction, is “permitted” if—
(a)the period begins before the end of 12 months after the end of the relevant PE period, or
(i)a claim has been made for the period to be a permitted period for the purposes of subsections (6) and (7), and
(ii)it is just and reasonable for the circumstances giving rise to the PE deduction to affect the profits or loss made for that period rather than an earlier period.
(10)Section 259FB contains provision for counteracting the excessive PE deduction.
259FBCounteraction of the excessive PE deduction
(1)For corporation tax purposes, the excessive PE deduction may not be deducted from the company’s income for the relevant PE period unless it is deducted from dual inclusion income for that period.
(2)So much of the excessive PE deduction (if any) as, by virtue of subsection (1), cannot be deducted from the company’s income for the relevant PE period—
(a)is carried forward to subsequent accounting periods of the company, and
(b)for corporation tax purposes, may be deducted from dual inclusion income of the company for any such period (and not from any other income), so far as it cannot be deducted under this paragraph for an earlier period.
(3)In this section “dual inclusion income” of the company for an accounting period means an amount that is both—
(a)ordinary income of the company for that period for corporation tax purposes, and
(4)A taxable period of the company is “permitted” for the purposes of paragraph (b) of subsection (3) if—
CHAPTER 7Hybrid payee deduction/non-inclusion mismatches
259GOverview of Chapter
(1)This Chapter contains provision that counteracts deduction/non-inclusion mismatches that it is reasonable to suppose would otherwise arise from payments or quasi-payments because a payee is a hybrid entity.
(2)The Chapter counteracts mismatches by—
(a)altering the corporation tax treatment of the payer for the payment period,
(b)treating income chargeable to corporation tax as arising to an investor who is within the charge to corporation tax, or
(c)treating income chargeable to corporation tax as arising to a payee that is a hybrid entity and a limited liability partnership.
(3)Section 259GA contains the conditions that must be met for this Chapter to apply.
(4)Section 259GB defines “hybrid payee deduction/non-inclusion mismatch” and provides how the amount of the mismatch is to be calculated.
(5)Section 259GC contains provision that counteracts the mismatch where the payer is within the charge to corporation tax for the payment period.
(6)Section 259GD contains provision that counteracts the mismatch where an investor in the payee is within the charge to corporation tax and the mismatch is not fully counteracted by section 259GC or an equivalent provision under the law of a territory outside the United Kingdom.
(7)Section 259GE contains provision that counteracts the mismatch where a payee is a hybrid entity and limited liability partnership and the mismatch is not otherwise fully counteracted.
(a)section 259BB for the meaning of “payment”, “quasi-payment”, “payment period”, “relevant deduction”, “payer” and “payee”;
259GACircumstances in which the Chapter applies
(3)Condition B is that a payee is a hybrid entity (a “hybrid payee”).
(a)the payer is within the charge to corporation tax for the payment period,
(b)an investor in a hybrid payee is within the charge to corporation tax for an accounting period some or all of which falls within the payment period, or
(c)a hybrid payee is a limited liability partnership.
(5)Condition D is that it is reasonable to suppose that, disregarding the provisions mentioned in subsection (6), there would be a hybrid payee deduction/non-inclusion mismatch in relation to the payment or quasi-payment (see section 259GB).
(a)this Chapter and Chapters 8 to 10, and
(a)it is a quasi-payment that is made as mentioned in subsection (2) and the payer is also a hybrid payee (see section 259BB(7)),
(b)the payer and a hybrid payee or an investor in a hybrid payee are in the same control group (see section 259NB) at any time in the period—
(a)the arrangement is designed to secure a hybrid payee deduction/non-inclusion mismatch, or
(9)The arrangement may be designed to secure a hybrid payee deduction/non-inclusion mismatch despite also being designed to secure any commercial or other objective.
(10)The following provisions contain provision for the counteraction of the hybrid payee deduction/non-inclusion mismatch—
(a)section 259GC (cases where the payer is within the charge to corporation tax for the payment period),
(b)section 259GD (cases where an investor in a hybrid payee is within the charge to corporation tax), and
(c)section 259GE (cases where a hybrid payee is a limited liability partnership).
259GBHybrid payee deduction/non-inclusion mismatches and their extent
(1)There is a “hybrid payee deduction/non-inclusion mismatch”, in relation to a payment or quasi-payment, if—
(b)all or part of that excess arises by reason of one or more payees being hybrid entities.
(2)The extent of the hybrid payee deduction/non-inclusion mismatch is equal to the excess that arises as mentioned in subsection (1)(b).
(3)A relevant amount of the excess is to be taken (so far as would not otherwise be the case) to arise as mentioned in subsection (1)(b) where—
(a)a payee is a hybrid entity,
(b)there is no territory—
(i)where that payee is resident for the purposes of a tax charged under the law of that territory, or
(ii)under the law of which ordinary income arises to that payee, by reason of the payment or quasi-payment, for the purposes of a tax that is charged on that payee by virtue of that payee having a permanent establishment in that territory, and
(c)no income arising to that payee, by reason of the payment or quasi-payment, is brought into account in calculating chargeable profits for the purposes of the CFC charge or a foreign CFC charge.
(4)For the purposes of subsection (3), the “relevant amount” of the excess is the lesser of—
(a)the amount of the excess, and
(b)an amount equal to the amount of ordinary income that it is reasonable to suppose would, by reason of the payment or quasi-payment, arise to the payee for corporation tax purposes, if—
(i)the payee were a company, and
(ii)the payment or quasi-payment were made in connection with a trade carried on by the payee in the United Kingdom through a permanent establishment in the United Kingdom.
(5)In subsection (3)(c) “chargeable profits”—
(a)in relation to the CFC charge, has the same meaning as in Part 9A (see section 371VA), and
(b)in relation to a foreign CFC charge, means the concept (by whatever name known) corresponding to chargeable profits within the meaning of that Part.
(6)A taxable period of a payee is “permitted” in relation to an amount of ordinary income that arises as a result of the payment or quasi-payment if—
259GCCounteraction where the payer is within the charge to corporation tax for the payment period
(2)For corporation tax purposes, the relevant deduction that may be deducted from the payer’s income for the payment period is reduced by an amount equal to the hybrid payee deduction/non-inclusion mismatch mentioned in section 259GA(5).
259GDCounteraction where the investor is within the charge to corporation tax
(5)If there is more than one investor in the hybrid payee, an amount equal to the investor’s share of the appropriate proportion of the relevant amount is to be treated as income arising to the investor for the counteraction period.
(7)The investor’s share of the appropriate proportion of the relevant amount is to be determined by apportioning that proportion of that amount between all the investors in the hybrid payee on a just and reasonable basis, having regard (in particular) to any arrangements as to profit sharing that may exist between some or all of those investors.
(b)otherwise, the first accounting period of the investor that is wholly or partly within the payment period.
259GECounteraction where a hybrid payee is an LLP
(5)If there is more than one hybrid payee, an amount equal to the hybrid payee’s share of the relevant amount is to be treated as income arising to the hybrid payee on the last day of the payment period.
(6)The hybrid payee’s share of the relevant amount is to be determined by apportioning that amount between all the hybrid payees on a just and reasonable basis, having regard (in particular) to—
(9)This section is to be disregarded for the purposes of determining whether the hybrid payee is within the charge to corporation tax for the purposes of any other provision of this Part, except section 259M (anti-avoidance).
CHAPTER 8Multinational payee deduction/non-inclusion mismatches
259HOverview of Chapter
(1)This Chapter contains provision that counteracts deduction/non-inclusion mismatches that it is reasonable to suppose would otherwise arise from payments or quasi-payments, where the payer is within the charge to corporation tax, because a payee is multinational company.
(2)The Chapter counteracts mismatches by altering the corporation tax treatment of the payer.
(3)Section 259HA contains the conditions that must be met for this Chapter to apply.
(4)Subsection (4) of that section defines “multinational company”, “parent jurisdiction” and “PE jurisdiction”.
(5)Section 259HB defines “multinational payee deduction/non-inclusion mismatch” and provides how the amount of the mismatch is to be calculated.
(6)Section 259HC contains provision that counteracts the mismatch.
(b)section 259BF for the meaning of “permanent establishment”.
259HACircumstances in which the Chapter applies
(3)Condition B is that a payee is a multinational company.
(4)For the purposes of this Chapter, a company is a “multinational company” if—
(a)it is resident in a territory (“the parent jurisdiction”) for tax purposes under the law of that territory, and
(b)it is regarded as carrying on a business in another territory (“the PE jurisdiction”) through a permanent establishment in that territory (whether it is so regarded under the law of the parent jurisdiction, the PE jurisdiction or any other territory).
(5)Condition C is that the payer is within the charge to corporation tax for the payment period.
(6)Condition D is that it is reasonable to suppose that, disregarding the provisions mentioned in subsection (7), there would be a multinational payee deduction/non-inclusion mismatch in relation to the payment or quasi-payment (see section 259HB).
(a)this Chapter and Chapters 9 and 10, and
(8)Condition E is that—
(b)the payer and the multinational company are in the same control group (see section 259NB) at any time in the period—
(9)The arrangement is “structured” if it is reasonable to suppose that—
(a)the arrangement is designed to secure a multinational company deduction/non-inclusion mismatch, or
(10)The arrangement may be designed to secure a multinational payee deduction/non-inclusion mismatch despite also being designed to secure any commercial or other objective.
(11)Section 259HC contains provision for the counteraction of the multinational payee deduction/non-inclusion mismatch.
259HBMultinational payee deduction/non-inclusion mismatches and their extent
(1)There is a “multinational payee deduction/non-inclusion mismatch”, in relation to a payment or quasi-payment, if—
(b)all or part of that excess arises by reason of one or more payees being multinational companies.
(2)The extent of the multinational payee deduction/non-inclusion mismatch is equal to the excess that arises as mentioned in subsection (1)(b).
(a)where the law of a PE jurisdiction in relation to a payee that is a multinational company makes no provision for charging tax on any companies, so much of the excess as arises as a result is to be taken not to arise by reason of that payee being a multinational company, but
(b)subject to that, it does not matter whether the excess or part arises for another reason as well as one or more payees being multinational companies (even if it would have arisen for that other reason regardless of whether any payees are multinational companies).
(4)A taxable period of a payee is “permitted” in relation to an amount of ordinary income that arises as a result of the payment or quasi-payment if—
259HCCounteraction of the multinational payee deduction/non-inclusion mismatch
For corporation tax purposes, the relevant deduction that may be deducted from the payer’s income for the payment period is reduced by an amount equal to the multinational payee deduction/non-inclusion mismatch mentioned in section 259HA(6).
CHAPTER 9Hybrid entity double deduction mismatches
259IOverview of Chapter
(1)This Chapter contains provision that counteracts double deduction mismatches that it is reasonable to suppose would otherwise arise by reason of a person being a hybrid entity.
(2)The Chapter counteracts mismatches where the hybrid entity, or an investor in the hybrid entity, is within the charge to corporation tax and does so by altering the corporation tax treatment of the entity or investor.
(3)Section 259IA contains the conditions that must be met for this Chapter to apply.
(4)Subsection (4) of that section defines “hybrid entity double deduction amount”.
(5)Section 259IB contains provision that counteracts the mismatch where an investor in the hybrid entity is within the charge to corporation tax.
(6)Section 259IC contains provision that, in certain circumstances, counteracts the mismatch where the hybrid entity is within the charge to corporation tax and the mismatch is not fully counteracted by provision under the law of a territory outside the United Kingdom that is equivalent to section 259IB.
(7)See also section 259BE for the meaning of “hybrid entity”, “investor” and “investor jurisdiction”.
259IACircumstances in which the Chapter applies
(9)Sections 259IB (cases where the investor is within the charge to corporation tax for the investor deduction period) and 259IC (cases where the hybrid entity is within the charge to corporation tax for the hybrid entity deduction period) contain provision for the counteraction of the hybrid entity double deduction amount.
259IBCounteraction where the investor is within the charge to corporation tax
(2)For corporation tax purposes, the hybrid entity double deduction amount may not be deducted from the investor’s income for the investor deduction period unless it is deducted from dual inclusion income of the investor for that period.
(3)So much of the hybrid entity double deduction amount (if any) as, by virtue of subsection (2), cannot be deducted from the investor’s income for the investor deduction period—
any of the hybrid entity double deduction amount that has not been deducted from dual inclusion income for an accounting period before the relevant period in accordance with subsection (2) or (3) (“the stranded deduction”) may be deducted at step 2 in section 4(2) of CTA 2010 in calculating the investor’s taxable total profits of the relevant period.
(5)So much of the stranded deduction (if any) as cannot be deducted, in accordance with subsection (4), at step 2 in section 4(2) of CTA 2010 in calculating the investor’s taxable total profits of the relevant period—
259ICCounteraction where the hybrid entity is within the charge to corporation tax
(a)the hybrid entity is within the charge to corporation tax for the hybrid entity deduction period,
(i)no provision under the law of an investor jurisdiction that is equivalent to section 259IB applies, or
(ii)such a provision does apply, but the hybrid entity double deduction amount exceeds the amount that, under that provision, cannot be deducted from income, for the investor deduction period, other than dual inclusion income of the hybrid entity for the hybrid entity deduction period, and
(c)the secondary counteraction condition is met.
(2)The secondary counteraction condition is met if—
(a)the hybrid entity and any investor in it are in the same control group (see section 259NB) at any time in—
(i)the hybrid entity deduction period, or
(ii)the investor deduction period, or
(b)there is an arrangement, to which the hybrid entity or any investor in it is party, that is a structured arrangement (within the meaning given by section 259IA(7) and (8)).
(3)In this section “the restricted deduction” means—
(a)in a case where subsection (1)(b)(i) applies, the hybrid entity double deduction amount, or
(b)in a case where subsection (1)(b)(ii) applies, the hybrid entity double deduction amount so far as it exceeds the amount that it is reasonable to suppose, under a provision of the law of a territory outside the United Kingdom that is equivalent to section 259IB, cannot be deducted from income, for the investor deduction period, other than dual inclusion income of the hybrid entity for the hybrid entity deduction period.
(4)For corporation tax purposes, the restricted deduction may not be deducted from the hybrid entity’s income for the hybrid entity deduction period unless it is deducted from dual inclusion income for that period.
(5)So much of the restricted deduction (if any) as, by virtue of subsection (4), cannot be deducted from the hybrid entity’s income for the hybrid entity deduction period—
(a)is carried forward to subsequent accounting periods of the hybrid entity, and
(b)for corporation tax purposes, may be deducted from dual inclusion income of the hybrid entity for any such period (and not from any other income), so far as it cannot be deducted under this paragraph for an earlier period.
(6)If the Commissioners are satisfied that the hybrid entity will have no dual inclusion income—
(a)for an accounting period after the hybrid entity deduction period (“the relevant period”), nor
any of the restricted deduction that has not been deducted from dual inclusion income for an accounting period before the relevant period in accordance with subsection (4) or (5) (“the stranded deduction”) may be deducted at step 2 in section 4(2) of CTA 2010 in calculating the hybrid entity’s taxable total profits of the relevant period.
(7)So much of the stranded deduction (if any) as cannot be deducted, in accordance with subsection (6), at step 2 in section 4(2) of CTA 2010 in calculating the hybrid entity’s taxable total profits of the relevant period—
(8)Subsection (9) applies if it is reasonable to suppose that all or part of the hybrid entity double deduction amount is (in substance) deducted (“the illegitimate overseas deduction”), under the law of a territory outside the United Kingdom, from income of any person, for a taxable period, that is not dual inclusion income of the hybrid entity for an accounting period.
(9)For the purposes of determining how much of the hybrid entity double deduction amount may be deducted (if any) for the accounting period of the hybrid entity in which the taxable period mentioned in subsection (8) ends, and any subsequent accounting periods of the hybrid entity, an amount of it equal to the illegitimate overseas deduction is to be taken to have already been deducted for a previous accounting period of the hybrid entity.
(10)In this section “dual inclusion income” of the hybrid entity for an accounting period means an amount that is both—
(a)ordinary income of the hybrid entity for that period for corporation tax purposes, and
(b)ordinary income of an investor in the hybrid entity for a permitted taxable period for the purposes of any tax charged under the law of an investor jurisdiction.
(11)A taxable period of an investor is “permitted” for the purposes of paragraph (b) of subsection (10) if—
CHAPTER 10Dual territory double deduction cases
259JOverview of Chapter
(1)This Chapter contains provision that counteracts double deduction mismatches that it is reasonable to suppose would otherwise arise as a result of a company—
(a)being a dual resident company, or
(b)being a relevant multinational company.
(2)The counteraction operates by altering the corporation tax treatment of the company.
(3)Section 259JA contains the conditions that must be met for this Chapter to apply.
(4)Subsection (3) of that section defines “dual resident company”.
(5)Subsection (4) of that section defines “relevant multinational company”, “parent jurisdiction” and “PE jurisdiction”.
(6)Subsection (5) of that section defines “dual territory double deduction amount”.
(7)Section 259JB contains provision that counteracts the mismatch where the company is a dual resident company.
(8)Section 259JC contains provision that counteracts the mismatch where the company is a multinational company and the United Kingdom is the parent jurisdiction.
(9)Section 259JD contains provision that counteracts the mismatch where the company is a relevant multinational company, the United Kingdom is the PE jurisdiction and the mismatch is not counteracted under a provision of the law of a territory outside the United Kingdom that is equivalent to section 259JC.
(10)See also section 259BF for the meaning of “permanent establishment”.
259JACircumstances in which the Chapter applies
(2)Condition A is that a company is a—
(a)dual resident company, or
(b)relevant multinational company.
(3)For the purposes of this Chapter a company is a “dual resident company” if—
(a)it is UK resident, and
(b)it is also within the charge to a tax under the law of a territory outside the United Kingdom because—
(i)it derives its status as a company from that law,
(ii)its place of management is in that territory, or
(iii)it is for some other reason treated under that law as resident in that territory for the purposes of that tax.
(4)For the purposes of this Chapter a company is a “relevant multinational company” if—
(a)it is within the charge to a tax, under the law of a territory (“the PE jurisdiction”) in which it is not resident for tax purposes, because it carries on business in that territory through a permanent establishment in that territory, and
(i)the PE jurisdiction is the United Kingdom, or
(ii)the territory in which the company is resident for tax purposes (“the parent jurisdiction”) is the United Kingdom.
(5)Condition B is that there is an amount (“the dual territory double deduction amount”) that, disregarding this Chapter and any equivalent provision under the law of a territory outside the United Kingdom, it is reasonable to suppose could, by reason of the company being a dual resident company or a relevant multinational company—
(a)be deducted from the company’s income for an accounting period (“the deduction period”) for corporation tax purposes, and
(b)also be deducted from the company’s income for a taxable period (“the foreign deduction period”) for the purposes of a tax charged under the law of a territory outside the United Kingdom.
(6)The following provisions provide for the counteraction of the dual territory double deduction amount—
(a)section 259JB (cases where a company is dual resident),
(b)section 259JC (cases where a company is a relevant multinational and the United Kingdom is the parent jurisdiction), and
(c)section 259JD (cases where a company is a relevant multinational, the United Kingdom is the PE jurisdiction and the amount is not counteracted in the parent jurisdiction).
259JBCounteraction where mismatch arises because of a dual resident company
(1)This section applies where the dual territory double deduction amount arises by reason of the company being a dual resident company.
(2)For corporation tax purposes, the dual territory double deduction amount may not be deducted from the company’s income for the deduction period unless it is deducted from dual inclusion income of the company for that period.
(3)So much of the dual territory double deduction amount (if any) as, by virtue of subsection (2), cannot be deducted from the company’s income for the deduction period—
(4)If the Commissioners are satisfied that the company has ceased to be a dual resident company, any of the dual territory double deduction amount that has not been deducted from dual inclusion income in accordance with subsection (2) or (3) (“the stranded deduction”) may be deducted at step 2 in section 4(2) of CTA 2010 in calculating the company’s taxable total profits of the accounting period in which it ceased to be a dual resident company.
(5)So much of the stranded deduction (if any) as cannot be deducted, in accordance with subsection (4), at step 2 in section 4(2) of CTA 2010 in calculating the company’s taxable total profits of the accounting period in which the company ceased to be a dual resident company—
(6)Subsection (7) applies if it is reasonable to suppose that all or part of the dual territory double deduction amount is (in substance) deducted (“the illegitimate overseas deduction”), under the law of a territory outside the United Kingdom, from income of any person, for a taxable period, that is not dual inclusion income of the company for an accounting period.
(7)For the purposes of determining how much of the dual territory double deduction amount may be deducted (if any) for the accounting period of the company in which the taxable period mentioned in subsection (6) ends, and any subsequent accounting periods of the company, an amount of it equal to the illegitimate overseas deduction is to be taken to have already been deducted for a previous accounting period of the company.
(8)In this section “dual inclusion income” of the company for an accounting period means an amount that is both—
(b)ordinary income of the company for a permitted taxable period for the purposes of a tax charged under the law of a territory outside the United Kingdom.
(9)A taxable period of the company is “permitted” for the purposes of paragraph (b) of subsection (8) if—
259JCCounteraction where mismatch arises because of a relevant multinational and the UK is the parent jurisdiction
(a)the dual territory double deduction amount arises by reason of the company being a relevant multinational company, and
(b)the United Kingdom is the parent jurisdiction.
(2)If some or all of the dual territory double deduction amount is (in substance) deducted (“the impermissible overseas deduction”), for the purposes of a tax under the law of a territory outside the United Kingdom, from the income of any person, for any taxable period, that is not dual inclusion income of the company—
(a)the dual territory double deduction amount that may be deducted, for corporation tax purposes, from the company’s income for the deduction period is reduced by the amount of the impermissible overseas deduction, and
(b)such just and reasonable adjustments (if any) as are required to give effect to that reduction, for corporation tax purposes, are to be made.
(3)Any adjustment required to be made under subsection (2) may be made (whether or not by an officer of Revenue and Customs)—
(4)In this section “dual inclusion income” of the company means an amount that is both—
(a)ordinary income of the company for an accounting period for corporation tax purposes, and
(5)A taxable period is “permitted” for the purposes of paragraph (b) of subsection (4) if—
(a)the period begins before the end of 12 months after the end of the accounting period of the company mentioned in paragraph (a) of that subsection, or
259JDCounteraction where mismatch arises because of a relevant multinational and is not counteracted in the parent jurisdiction
(a)the dual territory double deduction amount arises as a result of the company being a relevant multinational company,
(b)the United Kingdom is the PE jurisdiction, and
(c)it is reasonable to suppose that no provision of the law of the parent jurisdiction that is equivalent to section 259JC applies.
(4)If the Commissioners are satisfied that the company has ceased to be a relevant multinational company, any of the dual territory double deduction amount that has not been deducted from dual inclusion income in accordance with subsection (2) or (3) (“the stranded deduction”) may be deducted at step 2 in section 4(2) of CTA 2010 in calculating the company’s taxable total profits of the accounting period in which it ceased to be a relevant multinational company.
(5)So much of the stranded deduction (if any) as cannot be deducted, in accordance with subsection (4), at step 2 in section 4(2) of CTA 2010 in calculating the company’s taxable total profits of the accounting period in which the company ceased to be a relevant multinational company—
CHAPTER 11Imported mismatches
259KOverview of Chapter
(1)This Chapter contains provision denying deductions in connection with payments or quasi-payments that are made under, or in connection with, imported mismatch arrangements where the payer is within the charge to corporation tax for the payment period.
(2)Section 259KA contains the conditions that must be met for this Chapter to apply and defines “imported mismatch payment” and “imported mismatch arrangement”.
(3)Section 259KB defines “dual territory double deduction”, “excessive PE deduction” and “PE jurisdiction”.
(4)Section 259KC contains provision for denying some or all of a relevant deduction in relation to an imported mismatch payment.
(5)See also section 259BB for the meaning of “payment”, “quasi-payment”, “relevant deduction”, “payment period” and “payer”.
259KACircumstances in which the Chapter applies
(1)This Chapter applies if conditions A to G are met.
(2)Condition A is that a payment or quasi-payment (“the imported mismatch payment”) is made under, or in connection with, an arrangement (“the imported mismatch arrangement”).
(3)Condition B is that, in relation to the imported mismatch payment, the payer (“P”) is within the charge to corporation tax for the payment period.
(4)Condition C is that the imported mismatch arrangement is one of a series of arrangements.
(5)A “series of arrangements” means a number of arrangements that are each entered into (whether or not one after the other) in pursuance of, or in relation to, another arrangement (“the over-arching arrangement”).
(a)under an arrangement in the series other than the imported mismatch arrangement, there is a payment or quasi-payment (“the mismatch payment”) in relation to which it is reasonable to suppose that there is or will be—
(i)a hybrid or otherwise impermissible deduction/non-inclusion mismatch (see section 259CB),
(ii)a hybrid transfer deduction/non-inclusion mismatch (see section 259DC),
(iii)a hybrid payer deduction/non-inclusion mismatch (see section 259EB),
(iv)a hybrid payee deduction/non-inclusion mismatch (see section 259GB),
(v)a multinational payee deduction/non-inclusion mismatch (see section 259HB),
(vi)a hybrid entity double deduction amount (see section 259IA(4)), or
(vii)a dual territory double deduction (see section 259KB), or
(b)as a consequence of an arrangement in the series other than the imported mismatch arrangement, there is or will be an excessive PE deduction (see section 259KB),
and in this Chapter “the relevant mismatch” means the mismatch, amount or deduction concerned.
(7)Condition E is that it is reasonable to suppose—
(a)where subsection (6)(a) applies, that no provision of any of Chapters 3 to 5 or 7 to 10 nor any equivalent provision under the law of a territory outside the United Kingdom applies, or will apply, in relation to the tax treatment of any person in respect of the mismatch payment, or
(b)where subsection (6)(b) applies, that no provision of Chapter 6 nor any equivalent provision under the law of a territory outside the United Kingdom applies, or will apply, in relation to the tax treatment of the company in relation to which the excessive PE deduction arises.
(8)Condition F is that—
(a)subsection (6)(a) applies and it is reasonable to suppose that a provision of any of Chapters 3 to 5 or 7 to 10, or an equivalent provision under the law of a territory outside the United Kingdom, would apply in relation to the tax treatment of P if—
(i)P were the payer in relation to the mismatch payment,
(ii)P were a payee in relation to the mismatch payment, or
(iii)where the relevant mismatch is a hybrid payee deduction/non-inclusion mismatch or a hybrid entity double deduction amount, P were an investor in the hybrid entity concerned, or
(b)the relevant mismatch is an excessive PE deduction.
(a)subsection (6)(a) applies and P is in the same control group (see section 259NB) as the payer, or a payee, in relation to the mismatch payment, at any time in the period—
(i)beginning with the day the over-arching arrangement is made, and
(ii)ending with the last day of the payment period in relation to the imported mismatch payment,
(b)subsection (6)(b) applies and P is in the same control group as the company in relation to whom the excessive PE deduction arises at any time in that period, or
(c)the imported mismatch arrangement, or the over-arching arrangement, is a structured arrangement.
(10)The imported mismatch arrangement, or the over-arching arrangement, is a “structured arrangement” if it is reasonable to suppose that—
(a)the arrangement concerned is designed to secure the relevant mismatch, or
(b)the terms of the arrangement concerned share the economic benefit of the relevant mismatch between the parties to that arrangement or otherwise reflect the fact that the relevant mismatch is expected to arise.
(11)An arrangement may be designed to secure the relevant mismatch despite also being designed to secure any commercial or other objective.
(12)Section 259KC contains provision for denying all or part of the relevant deduction in relation to the imported mismatch payment by reference to the relevant mismatch.
259KBMeaning of “dual territory double deduction”, “excessive PE deduction” and “PE jurisdiction”
(2)A “dual territory double deduction” means an amount that can be deducted by a company both—
(a)from income for the purposes of a tax charged under the law of one territory, and
(b)from income for the purposes of a tax charged under the law of another territory.
(3)A “PE deduction” is an amount that—
(a)may (in substance) be deducted from a company’s income for the purposes of calculating the company’s taxable profits, for a taxable period, for the purposes of a tax that is charged on the company, under the law of a territory (“the PE jurisdiction”), by virtue of the company having a permanent establishment in that territory, and
(b)is in respect of a transfer of money or money’s worth, from the company in the PE jurisdiction to the company in another territory (“the parent jurisdiction”) in which it is resident for the purposes of a tax, that—
(ii)is (in substance) treated as being made for tax purposes.
(4)A PE deduction is “excessive” so far as it exceeds the sum of—
(5)A taxable period of the company is “permitted” for the purposes of subsection (4) if—
(a)the period begins before the end of 12 months after the end of the taxable period mentioned in subsection (3)(a), or
(i)a claim has been made for the period to be a permitted period for the purposes of subsection (4), and
259KCDenial of the relevant deduction in relation to the imported mismatch payment
(2)Otherwise, for corporation tax purposes, in relation to the imported mismatch payment, the relevant deduction that may be deducted from P’s income for the payment period is to be reduced by the amount of the relevant mismatch.
(3)For corporation tax purposes, where this subsection applies, in relation to the imported mismatch payment, the relevant deduction that may be deducted from P’s income for the payment period is to be reduced by P’s share of the relevant mismatch.
(4)P’s share of the relevant mismatch is to be determined by apportioning the relevant mismatch between P and every payer in relation to a relevant payment on a just and reasonable basis—
(a)where subsection (6)(a) applies, having regard (in particular) to the extent to which the imported mismatch payment and each relevant payment funds (directly or indirectly) the mismatch payment, or
(i)if the transfer of money or money’s worth mentioned in section 259KB(3)(b) is actually made, the extent to which the imported mismatch payment and each relevant payment funds (directly or indirectly) the transfer, or
(ii)if the transfer of money or money’s worth mentioned in section 259KB(3)(b) is (in substance) treated as being made, the extent to which the imported mismatch payment and each relevant payment would have funded (directly or indirectly) the transfer if it had actually been made.
(a)where subsection (6)(a) applies, it funds (directly or indirectly) the mismatch payment,
(b)where the relevant mismatch is an excessive PE deduction and the transfer of money or money’s worth mentioned in section 259KB(3)(b) is actually made, it funds (directly or indirectly) that transfer, or
(c)where the relevant mismatch is an excessive PE deduction and the transfer of money or money’s worth mentioned in section 259KB(3)(b) is (in substance) treated as being made, it would have funded (directly or indirectly) that transfer had that transfer actually been made.
(b)in relation to subsection (5), it is for P to show that the mismatch payment or transfer is funded (directly or indirectly) by one or more relevant payments instead of by the imported mismatch payment.
CHAPTER 12Adjustments in light of subsequent events etc
259LAdjustments where suppositions cease to be reasonable
(a)a reasonable supposition is made for the purposes of any provision of this Part, and
(b)the supposition turns out to be mistaken or otherwise ceases to be reasonable,
such consequential adjustments as are just and reasonable may be made.
(2)The adjustments may be made (whether or not by an officer of Revenue and Customs) by way of an assessment, the modification of an assessment, amendment or disallowance of a claim, or otherwise.
(3)But the power to make adjustments by virtue of this section is subject to any time limit imposed by or under any enactment other than this Part.
(4)No adjustment is to be made under this section on the basis that an amount of ordinary income arises, as a result of a payment or quasi-payment, to a payee after that payee’s last permitted taxable period in relation to the payment or quasi-payment (see section 259LA, which makes provision about certain such cases).
259LADeduction from taxable total profits where an amount of ordinary income arises late
(a)a relevant deduction in respect of a payment or quasi-payment is reduced by section 259CD, 259DF, 259GC or 259HC or by more than one of those sections,
(b)no other provision of this Part, or any equivalent provision of the law of a territory outside the United Kingdom, applies or will apply to the tax treatment of any person in respect of the payment or quasi-payment,
(c)the section or sections had effect because it was reasonable to suppose that the relevant deduction exceeded, or would exceed, the sum of the amounts of ordinary income arising, by reason of the payment or quasi-payment, to each payee for a permitted taxable period, and
(d)an amount of ordinary income (“the late income”) arises—
(i)by reason of the payment or quasi-payment, but
(ii)not as a consequence of any provision of this Part or any equivalent provision of the law of a territory outside the United Kingdom,
to a payee for a taxable period (“the late period”) that is not a permitted taxable period.
(2)An amount equal to the late income may be deducted at step 2 in section 4(2) of CTA 2010 in calculating the payer’s taxable total profits of the accounting period in which the late period ends.
(3)So much of that amount (if any) as cannot be deducted, in accordance with subsection (2), at step 2 in section 4(2) of CTA 2010 in calculating the taxable total profits of the accounting period in which the late period ends—
(4)But the total amount deducted from taxable total profits under this section, in relation to a payment or quasi-payment, may not exceed the total amount by which the relevant deduction is reduced as mentioned in (1)(a).
(5)In this section “permitted taxable period”—
(a)where the relevant deduction was reduced under section 259CD, has the meaning given by section 259CC(2),
(b)where the relevant deduction was reduced under section 259DF, has the meaning given by section 259DD(2),
(c)where the relevant deduction was reduced under section 259GC, has the meaning given by section 259GB(6),
(d)where the relevant deduction was reduced under section 259HC, has the meaning given by section 259HB(4), or
(e)where the relevant deduction was reduced under two or more of the sections mentioned in the preceding paragraphs of this subsection, includes any taxable period that is a permitted period under a provision mentioned in the paragraphs concerned.
CHAPTER 13Anti-avoidance
259MCountering the effect of avoidance arrangements
(a)relevant avoidance arrangements exist,
(b)as a result of those arrangements, any person (whether party to the arrangements or not) would, apart from this section, obtain a relevant tax advantage, and
(c)that person is—
(i)within the charge to corporation tax at the time the person would obtain the relevant tax advantage, or
(ii)would be within the charge to corporation tax at that time but for the relevant avoidance arrangements.
(2)The relevant tax advantage is to be counteracted by making such adjustments to the person’s treatment for corporation tax purposes as are just and reasonable.
(3)Any adjustments required to be made under this section (whether or not by an officer of Revenue and Customs) may be made by way of an assessment, the modification of an assessment, amendment or disallowance of a claim, or otherwise.
(4)A person obtains a “relevant tax advantage” if—
(a)the person avoids, to any extent, any provision of this Part, or any equivalent provision of the law of a territory outside the United Kingdom, restricting whether or how that person may make a deduction from income for the purposes of calculating taxable profits, or
(b)the person avoids, to any extent, an amount being treated as income of that person under any provision of this Part or any equivalent provision of the law of a territory outside the United Kingdom.
(5)“Relevant avoidance arrangements” means arrangements the main purpose, or one of the main purposes, of which is to enable any person to obtain a relevant tax advantage.
(6)But arrangements are not “relevant avoidance arrangements” if the obtaining of the relevant tax advantage can reasonably be regarded as consistent with the principles on which the provisions of this Part, or the equivalent provisions under the law of a territory outside the United Kingdom, that are relevant to the arrangements are based (whether express or implied) and the policy objectives of those provisions.
(7)For the purposes of determining the principles and policy objectives mentioned in subsection (6), regard may, where appropriate, be had to the Final Report on Neutralising the Effects of Hybrid Mismatch Arrangements published by the Organisation for Economic Cooperation and Development (“OECD”) on 5 October 2015 or any replacement or supplementary publication.
(8)In subsection (7) “replacement or supplementary publication” means any document that is approved and published by the OECD in place of, or to update or supplement, the report mentioned in that subsection (or any replacement of, or supplement to, it).
CHAPTER 14Interpretation
259NMeaning of “financial instrument”
(1)A “financial instrument” means—
(a)an arrangement profits or deficits arising from which would, on the assumption that the person to whom they arise is within the charge to corporation tax, fall to be brought into account for corporation tax purposes in accordance with Part 5 or 6 of CTA 2009 (loan relationships and relationships treated as loan relationships),
(b)a contract profits or losses arising from which would, on the assumption that the person to whom they arise is within the charge to corporation tax, fall to be brought into account for corporation tax purposes in accordance with Part 7 of CTA 2009 (derivative contracts),
(c)a type 1, type 2 or type 3 finance arrangement for the purposes of Chapter 2 of Part 16 of CTA 2010 (factoring of income etc: finance arrangements),
(d)a share forming part of a company’s issued share capital or any arrangement that provides a person with economic rights corresponding to those provided by holding such a share, or
(e)anything else that is a financial instrument.
(2)In subsection (1)(e) “financial instrument” has the meaning that it has for the purposes of UK generally accepted accounting practice.
(3)But “financial instrument” does not include—
(a)a hybrid transfer arrangement (within the meaning given by section 259DB), or
(b)anything that is a regulatory capital security for the purposes of the Taxation of Regulatory Capital Securities Regulations 2013 (S.I. 2013/3209) (as amended from time to time).
(4)Subsection (3)(b) is subject to any provision to the contrary that may be made by regulations under section 221 of FA 2012 (tax consequences of financial sector regulation).
Relevant investment funds
259NAMeaning of “relevant investment fund”
(1)“Relevant investment fund” means—
(a)an open-ended investment company within the meaning of section 613 of CTA 2010,
(b)an authorised unit trust within the meaning of section 616 of that Act, or
(c)an offshore fund within the meaning of section 354 of this Act (see section 355),
which meets the genuine diversity of ownership condition (whether or not a clearance has been given to that effect).
(2)“The genuine diversity of ownership condition” means—
(a)in the case of an offshore fund, the genuine diversity of ownership condition in regulation 75 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001), and
(b)in the case of an open-ended investment company or an authorised unit trust, the genuine diversity of ownership condition in regulation 9A of the Authorised Investment Funds (Tax) Regulations 2006 (S.I. 2006/964).
Control groups and related persons
259NBControl groups
(1)A person (“A”) is in the same control group as another person (“B”)—
(a)throughout any period for which they are consolidated for accounting purposes,
(c)on any day on which the 50% investment condition is met in relation to them.
(a)their financial results for the period are required to be comprised in group accounts,
(c)their financial results for the period are in fact comprised in group accounts.
(3)In subsection (2), “group accounts” means accounts prepared under—
(4)The participation condition is met in relation to A and B (“the relevant parties”) on a day if, within the period of 6 months beginning with the day—
(5)For the interpretation of subsection (4), see sections 157(1), 158(4), 159(1) and 160(1) (which have the effect that references in subsection (4) to direct or indirect participation are to be read in accordance with provisions of Chapter 2 of Part 4).
(6)The 50% investment condition is met in relation to A and B if—
(a)A has a 50% investment in B, or
(b)a third person has a 50% investment in each of A and B.
(7)Section 259ND applies for the purposes of determining whether a person has a “50% investment” in another person.
259NCRelated persons
(1)Two persons are “related” on any day that—
(a)they are in the same control group (see section 259NB), or
(b)the 25% investment condition is met in relation to them.
(2)The 25% investment condition is met in relation to a person (“A”) and another person (“B”) if—
(a)A has a 25% investment in B, or
(b)a third person has a 25% investment in each of A and B.
(3)Section 259ND applies for the purposes of determining whether a person has a “25% investment” in another person.
259NDMeaning of “50% investment” and “25% investment”
(c)if the whole of C’s share capital were disposed of, P would receive (directly or indirectly and whether at the time of disposal or later) X% or more of the proceeds of the disposal.
(a)if the whole of Q’s income were distributed, P would receive (directly or indirectly and whether at the time of the distribution or later) X% or more of the distributed amount, or
(b)in the event of a winding-up of Q or in any other circumstances, P would receive (directly or indirectly and whether or not at the time of the winding-up or other circumstances or later) X% or more of Q’s assets which would then be available for distribution.
(5)In this section, references to a person receiving any proceeds, amount or assets include references to the proceeds, amount or assets being applied (directly or indirectly) for that person’s benefit.
(6)For the purposes of subsections (3) and (4), in determining what percentage investment a person (“P”) has in another person (“U”), where P acts together with a third person (“T”) in relation to U, P is to be taken to have all of T’s rights and interests in relation to U.
(b)for the purposes of influencing the conduct of U’s affairs—
(i)P is able to secure that T acts in accordance with P’s wishes,
(ii)T can reasonably be expected to act, or typically acts, in accordance with P’s wishes,
(iii)T is able to secure that P acts in accordance with T’s wishes, or
(iv)P can reasonably be expected to act, or typically acts, in accordance with T’s wishes,
(i)it is reasonable to suppose is designed to affect the value of any of T’s rights or interests in relation to U, or
(ii)relates to the exercise of any of T’s rights in relation to U, or
(i)some or all of P’s rights or interests in relation to U, and
(ii)some or all of T’s rights or interests in relation to U.
(c)the Commissioners are satisfied that the management of the schemes is not coordinated for the purpose of influencing the conduct of U ’s affairs.
(9)In subsection (8) “collective investment scheme” and “operator” have the same meaning as in Part 17 of the Financial Services and Markets Act 2000 (see sections 235 and 237 of that Act).
259NETreatment of a person who is a member of a partnership
(1)This section applies where a person is a member of a partnership.
(2)Any reference in this Part to income, profits or an amount of the person includes a reference to the person’s share of (as the case may be) income, profits or an amount of the partnership.
(3)For this purpose “the person’s share” of income, profits or an amount is determined by apportioning the income, profits or amount between the partners on a just and reasonable basis.
(a)“partnership” includes an entity established under the law of a territory outside the United Kingdom of a similar character to a partnership, and
(b)“member” of a partnership is to be read accordingly.
259NFDefinitions
“taxable profits” is to be read in accordance with sections 259BC(2) and 259BD(5).”