INTM555060 - Hybrids: hybrid payee (Chapter 7): conditions to be satisfied: condition D

Condition D of S259GA is that it is reasonable to suppose that, if certain chapters of Part 6A (or equivalent non-UK legislation) did not apply, there would be a relevant deduction/non-inclusion mismatch (a hybrid payee deduction/non-inclusion mismatch) in relation to the payment or quasi-payment

The test is whether a relevant deduction/non-inclusion mismatch would arise if Chapters 7 to 10 of Part 6A TIOPA 10 (or any equivalent non-UK legislation) did not apply.

There is no definition of the term reasonable to suppose in Part 6A, so it takes its ordinary meaning. Generally, this does not require either party to actually know how the transaction has been treated by the counterparty but only that, given the facts and circumstances, it would be reasonable to conclude that a mismatch may or may not arise.

The inclusion of this phrase is intended to assist in the practical application of Condition D. Parties to the payment or quasi-payment should take all reasonable steps to establish whether a mismatch will arise, taking account of the relevant tax laws of the territories involved and the relevant facts and circumstances.

In applying this condition, it is appropriate to consider the relevance and extent of the information available between companies within the same group, and between parties to structured arrangements. It should not be necessary for the parties to await final resolution of the relevant tax returns.

When considering entities that are part of a consolidation regime, s259BE(4) applies in most instances so that the lead company in the consolidation is an investor in the company that actually receives the payment. A relevant mismatch should not arise where this is the case.