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

Overview of Chapter 4 – hybrid transfer deduction/non-inclusion mismatches

Section 259D provides an overview of the rules that counteract tax mismatches arising from hybrid transfer arrangements, where a tax deduction arises for one party but the corresponding income is not fully taxed for the other party.

• Chapter 4 targets deduction/non-inclusion mismatches that arise from payments or quasi-payments made under hybrid transfer arrangements — broadly, arrangements involving the transfer of financial instruments where the tax treatment differs between the parties involved.
• The chapter applies where either the payer or a payee is within the charge to UK corporation tax, and it counteracts the mismatch by adjusting the corporation tax position of that party.
• Where the payer is within the charge to corporation tax, the mismatch is counteracted on the payer side first; the payee side is only adjusted if the payer-side adjustment (whether under UK law or an equivalent foreign provision) does not fully eliminate the mismatch.
• An exclusion is available where the mismatch arises as a consequence of the tax treatment of a financial trader, recognising that certain mismatches in that context are not the type of hybrid outcome the rules are designed to address.

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