INTM555010 - Hybrids: hybrid payee (Chapter 7): overview

Chapter 7 of Part 6A TIOPA 2010 counters mismatches involving payments or quasi-payments (see INTM550540) to a hybrid entity where it is reasonable to suppose the mismatch arises because the entity is a hybrid entity, see INTM550580.

For the Chapter to apply, five conditions, Conditions A to E must be met.

Condition A

  • there is a payment or quasi-payment made under, or in connection with, an arrangement, see INTM555030

Condition B

Condition C

  • either the payer, or
  • an investor in a hybrid payee, is within the charge to UK corporation tax, or
  • the hybrid payee is a limited liability partnership, see INTM555050

Condition D

  • it is reasonable to suppose that there would be a mismatch arising by reason of a payee being a hybrid entity, if it were not countered by the hybrid mismatch legislation or equivalent legislation outside the UK, see INTM555060

Condition E

  • it is a quasi-payment and the payer is also a hybrid payee,
  • the payer and a hybrid payee are within the same control group, or
  • the arrangement is a structured arrangement, see INTM555070

If all of these conditions are met, then there is a hybrid payee D/NI mismatch if a payment or quasi-payment gives rise to a deduction which exceeds the ordinary income arising to the payee(s) for a permitted taxable period, to the extent that the excess is due to the payee(s) being hybrid entities.

The hybrid mismatch rules do not generally seek to neutralise temporary tax mismatches and so the permitted period for inclusion in ordinary income is any period that begins before the end of 12 months after the end of the taxable period in which the payment was deducted, or such longer time as (on a claim) is just and reasonable.

Where there is a hybrid payee that

  • is resident in a territory for the purposes of a tax charged at a higher rate than nil, or
  • has a permanent establishment that is not charged to tax on its ordinary income, and
  • the payment or quasi-payment does not give rise to any CFC charge,

a ‘relevant amount’ of the excess is treated as arising because of hybridity, see INTM555090.

Counteraction

If all 5 conditions are met, then the hybrid payee D/NI mismatch is countered as follows

  • where the payer is within charge to corporation tax, deny a deduction for the amount of the mismatch, see INTM555110, or
  • where an investor in the hybrid payee is within the charge to corporation tax, and it is reasonable to suppose that there has been no other sufficient counteraction within the Chapter, treat the relevant amount as taxable income of the investor (see INTM555120), apportioning the income between investors if required, or
  • where the hybrid payee is an LLP within the charge to corporation tax, and there has been no other sufficient counteraction within the Chapter, treat the relevant amount as taxable income arising to the LLP, see INTM555130