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

Counteraction where a payee is within the charge to corporation tax

Section 259DG provides the secondary counteraction for hybrid transfer deduction/non-inclusion mismatches, requiring a UK payee to recognise additional taxable income where the payer's jurisdiction has not fully denied the deduction.

• Where a payee is within the charge to UK corporation tax and the payer's deduction has not been fully counteracted (either because no equivalent foreign rule applies or because the foreign rule only partially reduces the deduction), the payee must bring an amount into charge as taxable income.
• The "relevant amount" brought into charge equals the full mismatch if there has been no counteraction on the payer side, or, where there has been partial foreign counteraction, the lesser of the remaining uncountered mismatch and the deduction the payer can still claim.
• Where there are multiple payees, the relevant amount is apportioned between them on a just and reasonable basis, taking into account profit-sharing arrangements, who benefits from under-taxed amounts, and to whom the missing ordinary income would have arisen.
• The income is charged to corporation tax under the residual income charge (Chapter 8, Part 10 of CTA 2009), and it arises in the accounting period that coincides with or first falls within the payment period.