F1PART 6AHybrid and other mismatches
CHAPTER 4Hybrid transfer deduction/non-inclusion mismatches
Application of Chapter
259DBMeaning of “hybrid transfer arrangement”, “underlying instrument” etc
1
This section has effect for the purposes of this Chapter.
2
A “hybrid transfer arrangement” means—
a
a repo,
b
a stock lending arrangement, or
c
any other arrangement,
that is an arrangement within subsection (3).
3
An arrangement is within this subsection if it provides for, or relates to, the transfer of a financial instrument (“the underlying instrument”) and—
a
the dual treatment condition is met in relation to the arrangement, or
b
a substitute payment could be made under the arrangement.
4
The dual treatment condition is met in relation to the arrangement if—
a
in relation to a person, for the purposes of a tax—
i
the arrangement is regarded as equivalent, in substance, to a transaction for the lending of money at interest, and
ii
a payment or quasi-payment made under, or in connection with, the arrangement or the underlying instrument could be treated so as to reflect the fact the arrangement is so regarded, and
b
in relation to another person, for the purposes of a tax (whether or not the same one), such a payment or quasi-payment would not be treated so as to reflect the arrangement being regarded as equivalent, in substance, to a transaction for the lending of money at interest.
5
A payment or quasi-payment is a “substitute payment” if—
a
it consists of or involves—
i
an amount being paid, or
ii
a benefit being given (including the release of the whole or part of any liability to pay an amount),
b
that amount, or the value of that benefit, is representative of a return of any kind (“the underlying return”) that arises on, or in connection with, the underlying instrument, and
c
the amount is paid, or the benefit is given, to someone other than the person to whom the underlying return arises.
6
For the purposes of subsection (3) where there is an arrangement, to which a person (“P”) and another person (“Q”) are party, under which—
a
a financial instrument (“the first instrument”) ceases to be owned by P (whether or not because it ceases to exist), and
b
Q comes to own a financial instrument (“the second instrument”) under which Q has the same, or substantially the same, rights and liabilities as P had under the first instrument,
the second instrument is to be treated as being transferred from P to Q.
F27
For the purposes of subsection (4) references to tax include any qualifying capital tax within the meaning given by section 259DD(11).
Pt. 6A inserted (with effect in accordance with Sch. 10 paras. 18-21 of the amending Act) by Finance Act 2016 (c. 24), Sch. 10 para. 1