Taxation (International and Other Provisions) Act 2010 section 236

Schemes involving hybrid entities

Section 236 defines a type of "deduction scheme" that exploits differences in how entities are treated for tax purposes in different territories — specifically where an entity is regarded as a taxable person in one territory but transparent (not separately taxable) in another.

• A scheme qualifies as a deduction scheme under this section when it involves a "hybrid entity" — an entity treated as a taxable body in one territory but as transparent (with income taxed on its members instead) in another territory.
• The scheme must be designed so that a deduction arises in one territory by virtue of the entity's status there, while the corresponding income is not fully taxed in the other territory because of the entity's different status in that jurisdiction.
• This provision is one of a group of seven sections that each define different types of arrangement qualifying as a "deduction scheme" — a key concept needed to satisfy condition A in the broader anti-avoidance rules.
• The hybrid entity mismatch targeted by this section typically allows a tax deduction to be claimed in one country without a corresponding taxable receipt arising in another country, thereby reducing the overall tax paid across jurisdictions.

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