INTM555120 - Hybrids: hybrid payee (Chapter 7): counteraction: investor in a hybrid payee

This counteraction applies to investors in a hybrid payee and treats all or part of the hybrid payee deduction/non-inclusion mismatch as income of the investor for the relevant counteraction period of that investor.

The counteraction at s259GD applies only where the investor is within the charge to UK corporation tax and where it is reasonable to suppose that

• no counteraction against the payer is possible under s259GC or equivalent non-UK provisions, or
• counteraction against the payer is possible under non-UK provisions equivalent to s259GC, but does not fully counteract the mismatch

Where no overseas provision equivalent to s259GC applies, the amount counteracted is an amount equal to the hybrid payee deduction/non-inclusion mismatch.

The mismatch is fully counteracted by a non-UK provision if this equivalent provision reduces the payer’s deduction by the full amount of the mismatch (as quantified under s259GB). In all other cases the amount of the deduction that has not been counteracted is the lesser of

• the amount of the deduction that the payer may still deduct, and
• the amount of the mismatch that is not counteracted by the non-UK provision equivalent to s259GB

If there is more than one investor the relevant amount is apportioned on a just and reasonable basis, as their share of the relevant amount for the counteraction period, having regard (in particular) to:

• any profit sharing arrangements between some or all of the payees, and
• the extent to which it is reasonable to suppose that the mismatch arises by reason of each hybrid payee being a hybrid entity

The counteraction period is

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

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