F1PART 6AHybrid and other mismatches
CHAPTER 9Hybrid entity double deduction mismatches
Counteraction
259ICCounteraction where the hybrid entity is within the charge to corporation tax
1
This section applies where—
a
the hybrid entity is within the charge to corporation tax for the hybrid entity deduction period,
b
it is reasonable to suppose that—
i
no provision under the law of an investor jurisdiction that is equivalent to section 259IB applies, or
ii
such a provision does apply, but the hybrid entity double deduction amount exceeds the amount that, under that provision, cannot be deducted from income, for the investor deduction period, other than dual inclusion income of the hybrid entity for the hybrid entity deduction period, and
c
the secondary counteraction condition is met.
2
The secondary counteraction condition is met if—
a
the hybrid entity and any investor in it are in the same control group (see section 259NB) at any time in—
i
the hybrid entity deduction period, or
ii
the investor deduction period, or
b
there is an arrangement, to which the hybrid entity or any investor in it is party, that is a structured arrangement (within the meaning given by section 259IA(7) and (8)).
3
In this section “the restricted deduction” means—
a
in a case where subsection (1)(b)(i) applies, the hybrid entity double deduction amount, or
b
in a case where subsection (1)(b)(ii) applies, the hybrid entity double deduction amount so far as it exceeds the amount that it is reasonable to suppose, under a provision of the law of a territory outside the United Kingdom that is equivalent to section 259IB, cannot be deducted from income, for the investor deduction period, other than dual inclusion income of the hybrid entity for the hybrid entity deduction period.
4
For corporation tax purposes, the restricted deduction may not be deducted from the hybrid entity's income for the hybrid entity deduction period F2unless it is deducted from dual inclusion income for that period.
5
So much of the restricted deduction (if any) as, by virtue of subsection (4), cannot be deducted from the hybrid entity's income for the hybrid entity deduction period—
a
is carried forward to subsequent accounting periods of the hybrid entity, and
b
for corporation tax purposes, may be deducted from dual inclusion income of the hybrid entity for any such period (and not from any other income), so far as it cannot be deducted under this paragraph for an earlier period.
6
If the Commissioners are satisfied that the hybrid entity will have no dual inclusion income—
a
for an accounting period after the hybrid entity deduction period (“the relevant period”), nor
b
for any accounting period after the relevant period,
any of the restricted deduction that has not been deducted from dual inclusion income for an accounting period before the relevant period in accordance with subsection (4) or (5) (“the stranded deduction”) may be deducted at step 2 in section 4(2) of CTA 2010 in calculating the hybrid entity's taxable total profits of the relevant period.
7
So much of the stranded deduction (if any) as cannot be deducted, in accordance with subsection (6), at step 2 in section 4(2) of CTA 2010 in calculating the hybrid entity's taxable total profits of the relevant period—
a
is carried forward to subsequent accounting periods of the hybrid entity, and
b
may be so deducted for any such period, so far as it cannot be deducted under this paragraph for an earlier period.
8
Subsection (9) applies if it is reasonable to suppose that all or part of the hybrid entity double deduction amount is (in substance) deducted (“the illegitimate overseas deduction”), under the law of a territory outside the United Kingdom, from income of any person F3other than an investor in the hybrid entity, for a taxable period, that is not dual inclusion income of the hybrid entity for an accounting period.
9
For the purposes of determining how much of the hybrid entity double deduction amount may be deducted (if any) for the accounting period of the hybrid entity in which the taxable period mentioned in subsection (8) ends, and any subsequent accounting periods of the hybrid entity, an amount of it equal to the illegitimate overseas deduction is to be taken to have already been deducted for a previous accounting period of the hybrid entity.
10
In this section “dual inclusion income” of the hybrid entity for an accounting period means an amount that is both—
a
ordinary income of the hybrid entity for that period for corporation tax purposes, and
b
ordinary income of an investor in the hybrid entity for a permitted taxable period for the purposes of any tax charged under the law of an investor jurisdiction.
11
A taxable period of an investor is “permitted” for the purposes of paragraph (b) of subsection (10) if—
a
the period begins before the end of 12 months after the end of the accounting period mentioned in paragraph (a) of that subsection, or
b
where the period begins after that—
i
a claim has been made for the period to be a permitted period in relation to the amount of ordinary income, and
ii
it is just and reasonable for the amount of ordinary income to arise for that taxable period rather than an earlier period.
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