INTM554060 - Hybrids: transfers by UK permanent establishment of a multinational company (Chapter 6): extent of the mismatch

If all of conditions A to C of s259FA are satisfied, the next step is to establish the extent of any excessive PE deduction for the purposes of Chapter 6.

The calculation of the excessive PE deduction will depend on the outcome of Condition C.

If it is reasonable to suppose that there was no increase in taxable profits nor reduction of losses, the excessive PE deduction is the amount of the PE deduction claimed.

If it is reasonable to suppose that there was an increase in taxable profits or a reduction of losses, but that this was less than the PE deduction claimed, then the excessive PE deduction is the PE deduction claimed, less the aggregate effect on taxable profits.

For the purposes of 259FA the PE deduction does not include

• (a) a debit in respect of amortisation brought into account under s.729 or 731 CTA 2009 (writing down the capitalised cost of an intangible fixed asset), or
• (b) an amount that is deductible in respect of amortisation under an equivalent law of a territory outside the UK

Note that this exemption is restricted to amortisation and does not extend to impairment.