INTM555080 - Hybrids: hybrid payee (Chapter 7): extent of the mismatch - general

If conditions A to E of s259GA TIOPA 2010 are satisfied the next step is to establish the extent of any hybrid payee deduction/non-inclusion mismatch for the purposes of Chapter 7.

S259GB(1) defines a hybrid payee deduction/non-inclusion mismatch in relation to a payment or quasi-payment as a mismatch where

  • there is an allowable deduction for the payer that exceeds the sum of ordinary income arising to each of the payees for a permitted period, and
  • all or part of that excess arises because one or more of the payees is a hybrid entity

There is no hybrid payee deduction/non-inclusion mismatch so far as the relevant deduction is

  • (a) a debit in respect of amortisation brought into account under s.729 or 731 CTA 2009 or
  • (b) an amount 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.

The hybrid mismatch rules do not generally seek to neutralise temporary tax mismatches and so the permitted period for inclusion in ordinary income is a period 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.

Qualifying Institutional Investors

Finance Act 2021 introduced rules into Part 6A TIOPA 2010 relating to Qualifying Institutional Investors (QIIs), which are defined in Paragraph 30A of Schedule 7AC TCGA 1992, see CG53012.

From 10 June 2021 (the date of Royal Assent of the Finance Act 2021), no excess is taken to have arisen by reason of the hybrid payee being a hybrid entity if the excess is attributable to a QII that is based in a territory that treats the income or profits of the hybrid entity as the income or profits of the QII, or if the QII is based in a territory that does not regard the hybrid entity as a distinct and separate person to the QII.

A QII is based in a territory if it is resident there for tax purposes or, if it is not resident anywhere for tax purposes, if it is established in that territory.

Furthermore, Finance Act 2021 introduced s259BC(8A) TIOPA 2010 which ensures that income is treated as ordinary income if it would have been brought into account for the purposes of calculating taxable profits but for the fact that person is a QII.