INTM553110 - Hybrids: hybrid payer (Chapter 5): counteraction - payee

This counteraction applies to a payee within the charge to UK corporation tax, where all or part of the hybrid payer deduction/non-inclusion mismatch is treated as income for the relevant ‘counteraction period’ of that payee.

The counteraction at s259ED applies where it is reasonable to suppose that

  • there has been no counteraction against the hybrid payer under non-UK legislation equivalent to s259EC, or
  • there has been counteraction against the hybrid payer under non-UK legislation equivalent to s259EC, but it does not fully counteract the mismatch

Where no overseas provision equivalent to s259EC applies, the amount to be counteracted under s259ED is equal to the excess of the hybrid payer deduction/non-inclusion mismatch over and above the amount of dual inclusion income.

The mismatch is not fully counteracted if, and to the extent that, the hybrid payer has not been denied a deduction equivalent to the amount by which the hybrid payer deduction/non-inclusion mismatch (as quantified by s259EB) exceeds the dual inclusion income (as quantified by s259EC(4)), as outlined in INTM553100.

Where the mismatch has not been fully counteracted by an overseas provision, the amount to be counteracted under Part 6A is the lesser of

  • the amount of the mismatch that it is reasonably supposed has not been restricted by the equivalent overseas rules, and
  • the amount of the relevant deduction that is deducted from income other than dual inclusion income,

after deducting any dual inclusion income.

If there is more than one payee, the relevant amount and any dual inclusion income is apportioned on a just and reasonable basis, particularly taking into account

  • any profit sharing arrangements between some or all of the payees, and
  • payees to whom ordinary income would have been expected to arise, but to whom it did not arise

For the purposes of these rules, the counteraction period is

  • the payee’s accounting period where that coincides with the payment period, or
  • the first accounting period of the payee that is wholly or partly within the payment period

Similarly, the payment period is the taxable period of the hybrid payer in which an amount may be deducted for the relevant payment or quasi-payment.

Dual inclusion income

The counteraction under s259ED is reduced by the amount, or proportion, of dual inclusion income. Dual inclusion income for s259ED means an amount that is ordinary income of both

  • the hybrid payer for the relevant payment period, and
  • an investor in the hybrid payer for a permitted taxable period for the purposes of any tax charged in the investor jurisdiction

An investor is defined at s259BE

  • if the payer is a hybrid entity because its income or profits are treated as the income or profits of another person, an investor is any person who is treated as having that income, or
  • if the payer is a hybrid entity because it is treated as a distinct and separate person in one territory but as part of another person in another territory, then the investor is the person in that other territory

A permitted taxable period of an investor is a taxable period of that investor which

  • begins at any time before the end of 12 months after the end of the accounting period within which the relevant deduction is claimed by the hybrid payer, or
  • where the period begins after that
    • (I) a claim has been made for the period to be a permitted period in relation to the amount of ordinary income, and
    • (II) it is just and reasonable that the ordinary income arises in that period instead of the earlier period

If there is additional dual inclusion income in a later period any such claim to extend the permitted period should precede or accompany the Corporation Tax return and self-assessment to which it related and be within the normal assessing time limits.