IFM40730 - Treatment of certain payments: hybrid and other mismatch rules

FA22/SCH2/PARA45

PARA 45 adjusts the operation of the hybrid mismatch rules contained within TIOPA10/PT6A in two respects, both related to the ability of qualifying asset holding companies (QAHC) to claim deductions in respect of the coupons on securities which would normally not give rise to relief due to the distributions rules.

The first change prevents TIOPA10/PT6A/CH3 applying to deny a QAHC deductions in respect of such securities. This is necessary as other jurisdictions may see the payments as dividends due to the equity-like features of the securities, and so tax receipts at a lower-than-normal level or relieve them completely.

The second change makes it clear that any amount received by a QAHC which gives rise to a liability on the QAHC to make a payment on such a security should be treated as ordinary income of the QAHC for the purposes of TIOPA10/PT6A/CH3. Absent this provision it might be argued that the receipt of that income gave rise to a relief such that the income would not be ordinary income for the purposes of the hybrids rules, such that the payer of the amount to the QAHC might suffer a counteraction.