Taxation (International and Other Provisions) Act 2010 section 259CD

Counteraction where the payer is within the charge to corporation tax for the payment period

Section 259CD sets out the primary counteraction for hybrid mismatch arrangements involving financial instruments, where the payer is a UK corporation tax payer — the payer's tax deduction is reduced by the amount of the mismatch.

• This section applies where the entity making the payment (the payer) is within the charge to UK corporation tax for the period in which the payment is made.
• The counteraction requires the payer's tax deduction to be reduced by an amount equal to the hybrid or otherwise impermissible deduction/non-inclusion mismatch identified under the Chapter 3 rules.
• This is the primary response to a hybrid mismatch involving financial instruments — it targets the payer first before any counteraction falls on the payee.
• The reduction is applied for corporation tax purposes only and relates specifically to the payment period in question.