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

The financial trader exclusion

Section 259DE sets out the financial trader exclusion, which can disapply the hybrid transfer mismatch rules where the mismatch arises because a substitute payment is treated as trading income by a financial trader who accounts for both the substitute payment and any associated payments in calculating their trading profits.

• The exclusion applies where a substitute payment creates a mismatch because it is taxed on one person as reflecting the underlying return, but is brought into account as trading income by a financial trader
• The financial trader must also bring any associated payments — that is, payments connected with the underlying instrument — into account in calculating their trading profits
• If the underlying return had been paid directly to the payee(s) instead, neither the UK financial instrument mismatch rules (Chapter 3) nor any equivalent foreign rules would have applied
• The hybrid transfer arrangement must not be a structured arrangement — meaning it must not have been designed to produce a mismatch