INTM550095 - Hybrids: introduction: legislative changes since 1 January 2017
FA (No. 2) 2017
| Chapter | Section | Impact |
|---|---|---|
| 2 | 259B(3) | Clarification of scope of meaning of ‘foreign tax’ |
| 3 | 259CC(2) | Clarification of ‘permitted period’ for purposes of the extent of the hybrid instrument deduction/non-inclusion mismatch |
| 4 | 259DD(2) | Clarification of ‘permitted period’ for purposes of the extent of the hybrid transfer deduction/non-inclusion mismatch |
| 5 | 259EB(1A) | Deductions in respect of amortisation under s729 or s731 CTA 2009, or in respect of amortisation under an equivalent law of a territory outside the UK, are not hybrid payer deduction/non-inclusion mismatches |
| 6 | 259FA(4A) | A permanent establishment (PE) deduction for the purpose of Part 6A does not include deductions in respect of amortisation under s729 or s731 CTA 2009, or in respect of amortisation under an equivalent law of a territory outside the UK |
| 7 | 259GB(1A) | Deductions in respect of amortisation under s729 or s731 CTA 2009, or in respect of amortisation under an equivalent law of a territory outside the UK, are not hybrid payee deduction/non-inclusion mismatches |
| 8 | 259HB(1A) | Deductions in respect of amortisation under s729 or s731 CTA 2009, or in respect of amortisation under an equivalent law of a territory outside the UK, are not multinational payee deduction/non-inclusion mismatches |
| 11 | 259KB(3A) | An excessive PE deduction for the purpose of Chapter 11 of Part 6A does not include deductions in respect of amortisation under s729 or s731 CTA 2009, or in respect of amortisation under an equivalent law of a territory outside the UK |
FA 2018
| Chapter | Section | Impact |
|---|---|---|
| 2 | 259B(3A) | Payment of withholding tax is to be ignored for the purposes of Part 6A |
| 2 | 259B(5) | When a person is resident outside the UK and the law of the relevant territory has no provision for a person to be resident for tax purposes, references to a person’s residence for tax purposes in chapters 8-11 is to be taken as meaning their residence in the territory outside the UK |
| 2 | 259BC(3) | Meaning of ‘ordinary income’: amount of income not brought into account for purposes of calculating income or profits on which tax is charged to the extent it is charged to relevant tax at nil, or excluded by any exemption/exclusion/relief/credit that either applies generally to the income, or arises as a result of or in connection with a payment giving rise to the amount of income |
| 6 | 259FA(7A) | For the purpose of Condition C of Chapter 6 any increase in taxable profits or reduction in losses is to be ignored in any case where tax is charged at nil under the law of the parent jurisdiction |
| 7 | 259GB(3) | Inserted ‘at a higher rate than nil’ after ‘where that payee is resident for the purposes of a tax charged’ |
| 11 | 259KB(4A) | For the purpose of establishing whether a PE deduction is ‘excessive’ any increase in taxable profits or reduction in losses is to be ignored in any case where tax is charged at nil under the law of the parent jurisdiction |
| 2 | 259BD(12A) to (13) | Explanation of a qualifying CFC amount and expand definition of ‘chargeable profits’ to include any qualifying CFC amount within the given meaning |
| 3 | 259CC(7) to (12) | Inserted explanation and treatment of ‘a qualifying capital amount‘ for the purpose of Case 2 |
| 4 | 259DB(7) | For purpose of s259DB(4) references to tax include any qualifying capital tax within the meaning of s259DB |
| 4 | 259DB(6) to (11) | Inserted explanation and treatment of ‘a qualifying capital amount’ for the purpose of Case 2 |
| 7 | 259GB(4A) | When a payee is a partnership, it is to be assumed that no amount of ordinary income arises to the payee by reason of the payment/quasi-payment if a partner in that partnership is entitled to the amount, and, having regard to the law of the territory where the partnership is established and that where the partner is resident/established, the payee would not be regarded as a hybrid entity |
| 8 | 259HB(2A) | Clarification of the counterfactual test: excess is to be taken to arise by reason of the payee being a multinational company so far as it would not arise if it was assumed that the company is not regarded under any territory as carrying on a business in the PE jurisdiction, and for tax purposes all amounts of ordinary income are regarded as arising to it in the parent jurisdiction |
| 9 | 259IC(4) | Restricted deduction may not be deducted from the hybrid entity’s income unless it is from dual inclusion income or section 259ID income for that period |
| 9 | 259ID | Section 259 ID income for the purposes of section 259 IC: application, conditions and amount of income of the hybrid entity that is 259ID income |
| 11 | 259K | Imported mismatches: dual inclusion income. S259KD inserted to provide for relief where an amount is deducted from dual inclusion income |
| 12 | 259LB | Adjustment in light of later treatment of accounting purposes section inserted to allow for such consequential adjustments as are just and reasonable in respect of reversal of a debit by a credit of the company after the end of the payment period |
FA 2019
| Chapter | Section | Impact |
|---|---|---|
| 8 | 259HA(5) | Condition C expanded to include multinational companies that are UK resident for the payment period and under have a disregarded permanent establishment in the PE jurisdiction, with effect from 1 January 2020 |
| 8 | 259HC | Counteraction of the multinational payee deduction/non-inclusion mismatch clarified to include the expanded Condition C at s259HA(5) |
| 14 | 259N(3) | A financial instrument does not include ‘anything of a description specified in regulations made by the treasury’. Subsection (4) deleted |
FA 2021
| Chapter | Section | Impact |
|---|---|---|
| 2 | 259B(3) | Clarifies when tax should be regarded as a foreign tax for the purposes of the hybrid’s rules |
| 2 | 259BC(8A) | New subsection ensures income not brought into account by a person because they are a qualifying institutional investor can be treated as ordinary income |
| 3 | 259CB | Introduces relevant debt relief circumstances that correspond to most of the existing relevant debt relief provisions |
| 3 | 259CB | New 2593(3A) ensures excesses that arise by reason of an interest distribution designation are not counteracted under Chapter 3 |
| 5 | 259EB | Ensures excesses that arise to qualifying institutional investors are not subject to counteraction if conditions are met |
| 5 | 259EC | Definition of dual inclusion income expanded to include inclusion/non-deduction income if conditions are met |
| 6 | 259FA(4) | Ensures adjustments arising by way of capital attribution tax adjustments are not subject to counteraction |
| 6 | 259FB | Introduces the concept of excessive PE inclusion income |
| 7 | 259GB | Ensures excesses that arise to qualifying institutional investors are not subject to counteraction if conditions are met |
| 9 | 259IC | Definition of dual inclusion income expanded to include inclusion/non-deduction income if conditions are met |
| 9 | 259IC | Change to definition of illegitimate overseas deduction: deductions utilised by investor itself now excluded |
| 10 | 259JB | Change to definition of illegitimate overseas deduction: deductions utilised by parent itself now excluded |
| 10 | 259JD | Introduces concept of excessive PE inclusion income |
| 10 | 259JD | Change to definition of illegitimate overseas deduction: deductions utilised by the PE’s headquarters now excluded |
| 11 | 259KA(7) | New condition E: to be met it must be reasonable to suppose the relevant mismatch is not capable of counteraction |
| 11 | 259KA(8) | Repeal of condition F |
| 11 | 259KA(9) | Amendment to condition G so that the P must be in the same control group as a payee (not as the payer or a payee) |
| 11 | 259KE | New subsection that caps any counteraction under Chapter 11 in respect of a given imported mismatch payment at the amount the relevant mismatch would have been had the mismatch payment been in an amount equal to that imported mismatch payment |
| 11 | 259KF | New subsection to ensure any reductions (to an arm’s length amount) to the deduction allowed for the imported mismatch payment under the transfer pricing rules are taken account of in calculating the relevant mismatch |
| 12A | - | New chapter that allows the allocation of dual inclusion income within a group of companies if conditions are met |
| 13 | 259M(4) | Expands scope of relevant tax advantage to include a person doing anything that results in an amount being treated as dual inclusion income |
| 13A | - | New chapter containing special provisions for transparent funds. Investors with less than 10% interest in payments from transparent funds will not be subject to counteraction if conditions are met |
| 14 | 259ND | Changes to requirements for acting together to ensure P must have at least a 5% stake in U |
| 14 | 259NDA | New subsection defines qualifying institutional investor |
| 14 | 259NEZA | New subsection clarifies that the tax treatment of any securitisation company will not be affected by the Hybrids rules |
FA 2022
| Chapter | Section | Impact |
|---|---|---|
| 7 | 259GB(4A) | Expands treatment of partnerships to include relevant transparent entities |
| 7 | 259GB(4AA) | New subsection to identify every hybrid entity of the payee or payees’ structure whose status may be relevant to the mismatch |
| 7 | 259GB(4AB) | New subsection to ensure that existing rules work as intended in relation to cases where a hybrid entity is established in a zero-tax jurisdiction or where the payee or payees’ structure involves more than one tier of entities |
| 7 | 259(4B) | Extends the meaning of ‘partnership’ to subsection 4AA to 4C |
| 7 | 259(4C) | New subsection defining ‘relevant transparent entity’ |
| 7 | 259(4D) | New subsection defining a ‘member’ of a relevant transparent entity |
The Hybrid and Other Mismatches (Financial Instrument: Exclusions) Regulations 2019
These Regulations supplement the definition of ‘financial instrument’ in section 259N of the Taxation (International and Other Provisions) Act 2010 (c. 8) which falls within Part 6A of that Act (hybrid and other mismatches). These regulations have effect form 1 January 2020 until 31 December 2022.
Section 259N(1) defines ‘financial instrument’. Under section 259N(3), ‘financial instrument’ does not include a hybrid transfer arrangement (within the meaning given by section 259DB) or anything of a description specified in regulations made by the Treasury. These Regulations specify other things which are not a ‘financial instrument’.
The Taxation of Hybrid Capital Instruments (Amendment of Section 475C of the Corporation Tax Act 2009) Regulations 2019
These Regulations amend section 475C of the Corporation Tax Act 2009 to ensure that the rules relating to hybrid capital instruments, introduced in Schedule 20 to the Finance Act 2019, work as intended. Specifically, these amendments ensure that where a takeover or change of control has taken place a conversion into shares of the new parent company will be a ‘conversion event’ for the purposes of section 475C.
These Regulations have effect from 1st January 2019, save in relation to stamp duty and stamp duty reserve tax for which they take effect from 12th February 2019. Paragraph 19(5) of Schedule 20 to the Finance Act 2019 enables these provisions to have retrospective effect.