Taxation (International and Other Provisions) Act 2010

[F1CounteractionU.K.

259KCDenial of the relevant deduction in relation to the imported mismatch paymentU.K.

(1)If, in addition to the imported mismatch payment, there are, or will be, one or more relevant payments in relation to the relevant mismatch, subsection (3) applies.

(2)Otherwise, for corporation tax purposes, in relation to the imported mismatch payment, the relevant deduction that may be deducted from P's income for the payment period is to be reduced by the amount of the relevant mismatch.

[F2(2A)But any reduction under this section has effect subject to section 259KD (deductions from dual inclusion income)] [F3and section 259KE (limit on reduction under section 259KC)].

(3)For corporation tax purposes, where this subsection applies, in relation to the imported mismatch payment, the relevant deduction that may be deducted from P's income for the payment period is to be reduced by P's share of the relevant mismatch.

(4)P's share of the relevant mismatch is to be determined by apportioning the relevant mismatch between P and every payer in relation to a relevant payment on a just and reasonable basis—

(a)where [F4section 259KA(6)(a)] applies, having regard (in particular) to the extent to which the imported mismatch payment and each relevant payment funds (directly or indirectly) the mismatch payment, or

(b)where the relevant mismatch is an excessive PE deduction, having regard (in particular) to—

(i)if the transfer of money or money's worth mentioned in section 259KB(3)(b) is actually made, the extent to which the imported mismatch payment and each relevant payment funds (directly or indirectly) the transfer, or

(ii)if the transfer of money or money's worth mentioned in section 259KB(3)(b) is (in substance) treated as being made, the extent to which the imported mismatch payment and each relevant payment would have funded (directly or indirectly) the transfer if it had actually been made.

(5)For the purposes of subsection (4)(a) and (b)(i), the imported mismatch payment is to be taken to fund the mismatch payment or transfer to the extent that the mismatch payment or transfer cannot be shown instead to be funded (directly or indirectly) by one or more relevant payments.

(6)For the purposes of subsection (4)(b)(ii), it is to be assumed that the imported mismatch payment would have funded the transfer if it had actually been made to the extent that it cannot be shown by P that, if it had been made, the transfer would have instead been funded (directly or indirectly) by one or more relevant payments.

(7)For the purposes of this section, a payment or quasi-payment, other than the imported mismatch payment or any mismatch payment, is a “relevant payment” in relation to the relevant mismatch if it is made under an arrangement in the series of arrangements mentioned in section 259KA(4) and—

(a)where [F5section 259KA(6)(a)] applies, it funds (directly or indirectly) the mismatch payment,

(b)where the relevant mismatch is an excessive PE deduction and the transfer of money or money's worth mentioned in section 259KB(3)(b) is actually made, it funds (directly or indirectly) that transfer, or

(c)where the relevant mismatch is an excessive PE deduction and the transfer of money or money's worth mentioned in section 259KB(3)(b) is (in substance) treated as being made, it would have funded (directly or indirectly) that transfer had that transfer actually been made.

(8)In proceedings before a court or tribunal in connection with this section—

(a)in relation to subsection (1), it is for P to show that, in addition to the imported mismatch payment, there are one or more relevant payments in relation to the relevant mismatch, and

(b)in relation to subsection (5), it is for P to show that the mismatch payment or transfer is funded (directly or indirectly) by one or more relevant payments instead of by the imported mismatch payment.

[F6259KDDeductions from dual inclusion incomeU.K.

(1)If—

(a)section 259KA(6)(a) applies as a result of any of sub-paragraphs (iii) to (vii), or

(b)section 259KA(6)(b) applies,

a reduction under section 259KC is not to exceed the relevant net amount.

(2)For the purposes of this section “the relevant net amount” means—

(a)if section 259KA(6)(a)(iii), (iv), (v) or (vi) applies, the amount which, if Chapter 5, 7, 8 or 9 applied to the tax treatment of any person in respect of the mismatch payment, could not be deducted from that person’s income under that Chapter (ignoring the effect of any of the carry-forward provisions),

(b)if section 259KA(6)(a)(vii) applies, the amount by which the dual territory double deduction of the company mentioned in section 259KB(2) for a deduction period exceeds its dual inclusion income for that period, or

(c)if section 259KA(6)(b) applies, the amount by which the excessive PE deduction of the company mentioned in section 259KB(4) for the permitted taxable period mentioned there exceeds its dual inclusion income for that period.

(3)In subsection (2)(a) “the carry-forward provisions” means—

(a)section 259EC(3) (hybrid payer deduction/non-inclusion mismatches),

(b)section 259IB(3) to (5) (hybrid entity double deduction mismatches: investor within charge to corporation tax), and

(c)section 259IC(5) to (7) (hybrid entity double deduction mismatches: hybrid entity within charge to corporation tax).

(4)In subsection (2)(b) “dual inclusion income” of a company for a deduction period (that is to say, a period for which the dual territory double deduction is deducted as mentioned in section 259KB(2)(a)) means an amount that is both—

(a)ordinary income of the company for that period for the purposes of a tax charged as mentioned in section 259KB(2)(a), and

(b)ordinary income of the company for a permitted taxable period for the purposes of a tax charged as mentioned in section 259KB(2)(b).

(5)A taxable period of the company is “permitted” for the purposes of subsection (4)(b) if—

(a)the period begins before the end of 12 months after the end of the deduction period, or

(b)where that 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.

(6)In subsection (2)(c) “dual inclusion income” of a company for a period means an amount that is both—

(a)ordinary income of the company for that period for the purposes of a tax charged under the law of the PE jurisdiction, and

(b)ordinary income of the company for a permitted taxable period for the purposes of a tax charged under the law of the parent jurisdiction.

(7)A taxable period of the company is “permitted” for the purposes of paragraph (b) of subsection (6) if—

(a)the period begins before the end of 12 months after the end of the 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.]

[F7259KELimit on reduction under section 259KCU.K.

(1)This section applies where, in relation to the imported mismatch payment, the relevant deduction that may be deducted from P's income for a payment period is to be reduced under section 259KC.

(2)The reduction is not to exceed the amount that the relevant mismatch would have been if the amount of the mismatch payment had been equal to the amount of the imported mismatch payment.]

[F8259KFProvision for cases within Part 4U.K.

(1)This section applies where, in calculating the profits and losses of P for tax purposes, the amount to be deducted in respect of the imported mismatch payment is required to be reduced (whether or not to nil) under section 147(3) or (5) (tax calculations to be based on arm's length, not actual, provision).

(2)For the purposes of section 259KC(2), the amount of the relevant mismatch is to be determined as if the mismatch payment was reduced by the same proportion as the reduction mentioned in subsection (1).

(3)For the purposes of section 259KC(3)—

(a)the amount of the relevant mismatch is taken to be the amount it would have been had the arm's length provision been made or imposed instead of the actual provision in relation to the imported mismatch payment (making such assumptions as to the amount of the mismatch payment as are reasonable in the circumstances), and

(b)P's share of the relevant mismatch is to be determined accordingly.

(4)In subsection (3) “the arm's length provision” and “the actual provision” are to be construed in accordance with section 147(1).]]