INTM559240 - Hybrids: imported mismatches (Chapter 11): conditions to be satisfied: condition D

Condition D of S259KA is that there is a relevant mismatch.

Mismatch

There is a relevant mismatch under s259KA(6)(a) if there is a payment or quasi-payment

  • under an arrangement within the series of arrangements
  • that is not the imported mismatch arrangement, and
  • in relation to which it is reasonable to suppose there is, or will be, a hybrid or other mismatch within Chapters 3, 4, 5, 7, 8 or 9 of Part 6A, or
  • in relation to which it is reasonable to suppose there is, or will be, a dual territory double deduction (s259KB)

The amount of the relevant mismatch is

  • the amount of the mismatch as calculated under the relevant provision of Chapters 3 to 5, or Chapters 7 to 9, or
  • the amount of the dual territory double deduction or excessive PE deduction

S259KB defines a dual territory double deduction as an amount that can be deducted from the company’s income in any two territories.

Excessive PE deduction

There is also a relevant mismatch under s259KA(6)(b) where

  • there is an arrangement within the series of arrangements
  • that arrangement is not the imported mismatch arrangement, and
  • as a consequence of that arrangement there is, or will be, an excessive PE deduction (s259KB)

A PE deduction is defined at s259KB(3) as an amount that

  • is in respect of a transfer of money or money’s worth from the company in the PE jurisdiction to the company in another territory, and
  • may, in substance, be deducted from the company’s income when calculating the taxable profits of the company in the PE jurisdiction for a taxable period

For the purposes of this section a PE deduction does not include

  • a debit in respect of amortisation that is brought into account under s729 or s731 CTA 2009, or
  • an amount that is deductible in respect of amortisation under a provision of the law of a territory outside the UK that is equivalent to either of those two sections

S259KB(4) defines a PE deduction as excessive to the extent that the PE deduction exceeds the amount of any increase in profits or reduction in losses of the company for tax purposes, for a permitted taxable period, in the parent jurisdiction that arise from the circumstances giving rise to the PE deduction.

This is subject to s259KB (4A) which states that any increase in taxable profits or reduction of losses is to be ignored in any case where tax is charged at a nil rate under the law of the parent jurisdiction.

A taxable period of the company is ‘permitted’ for the purposes of s259KB(4) if

  • it begins before the end of 12 months after the end of the taxable period mentioned in s259KB(3), or
  • where the period begins after that, a claim has been made for a period to be permitted and it is just and reasonable for the circumstances giving rise to the PE deduction to affect the profits or losses made for that later period