What does section 938N of the Corporation Tax Act 2010 do?

Section 938N establishes that the group mismatch rules take priority over certain other tax provisions. When determining amounts brought into account under the group mismatch rules, specified anti-avoidance and adjustment provisions elsewhere in United Kingdom tax legislation must be treated as having no effect, ensuring group mismatch rules are applied first to unadjusted figures.

Which provisions are disapplied by section 938N when applying the group mismatch rules?

Section 938N disapplies the loan relationships unallowable purpose rule (section 441 CTA 2009), the equivalent derivative contracts rule (section 690 CTA 2009), the transfer pricing rules (Part 4 TIOPA 2010), the hybrid and other mismatches rules (Part 6A TIOPA 2010), and the corporate interest restriction rules (Part 10 TIOPA 2010).

How does the priority rule in section 938N work in practice?

When calculating whether amounts give rise to a relevant tax advantage under the group mismatch rules, taxpayers must compute those amounts as if the listed provisions did not exist. The group mismatch rules are applied to the full, unadjusted figures first. Only after group mismatch adjustments are made may the other provisions apply to any remaining amounts.

Why does section 938N require the group mismatch rules to be applied before other provisions?

The ordering ensures the group mismatch rules operate on full, unadjusted figures. Without this priority, other provisions such as the unallowable purpose rule or transfer pricing adjustments could reduce amounts before the group mismatch rules apply, potentially circumventing the intended operation of the group mismatch regime under United Kingdom corporation tax law.

Corporation Tax Act 2010 section 938N

Priority

Section 938N establishes that the group mismatch rules take priority over certain other tax provisions, which must be disregarded when determining amounts brought into account under this Part.

When applying the group mismatch rules, specific anti-avoidance and adjustment provisions elsewhere in tax legislation must be treated as having no effect.
The disapplied provisions include the loan relationships unallowable purpose rule (section 441 of CTA 2009) and the equivalent rule for derivative contracts (section 690 of CTA 2009).
The transfer pricing rules (Part 4 of TIOPA 2010), the hybrid and other mismatches rules (Part 6A of TIOPA 2010), and the corporate interest restriction rules (Part 10 of TIOPA 2010) are also disapplied for these purposes.
The practical effect is that the group mismatch rules are applied first, before any of these other provisions can restrict or adjust the amounts in question.

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