INTM552230 - Hybrids: hybrid transfers (Chapter 4): counteraction - UK payee

Counteraction in relation to a UK payee is dealt with in s259DG and occurs only if it is reasonable to suppose that the corresponding payer is not denied a deduction under the UK hybrid mismatch legislation (see INTM552220), or an equivalent provision under of another territory, or where the payer counteraction is only partial.

A counteraction is a partial counteraction if some of the hybrid transfer deduction/non-inclusion mismatch, as computed under the UK legislation at s259DC (see INTM552160), remains deductible even after the equivalent provision has been applied.

If there is only one payee, the entire relevant amount is treated as taxable income of the UK payee for the counteraction period. The relevant amount is the hybrid transfer deduction/non-inclusion mismatch deduction that is not counteracted, or the part of the deduction that is not counteracted.

If there is more than one payee, this amount is apportioned between payees on a just and reasonable basis. This basis takes into account profit sharing arrangements that may exist between payees, to whom amounts that are not taxed as ordinary income arise and to whom under-taxed amounts arise.

The counteraction period in which the income should be included is the accounting period of the payee that coincides with the chargeable period of the payer (under its applicable tax law) or, if there is no such period, the payee’s first accounting period that is wholly or partly contained within the payer’s chargeable period.