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

Circumstances in which the Chapter applies

Section 259EA sets out the five conditions (A to E) that must all be met for the hybrid payer deduction/non-inclusion mismatch rules in Chapter 5 to apply.

• A payment or quasi-payment must be made under an arrangement by a hybrid entity (an entity treated differently for tax purposes in different jurisdictions), and either the hybrid payer or a payee must be within the charge to UK corporation tax.
• It must be reasonable to suppose that, ignoring the hybrid mismatch rules in Chapters 5 to 10 and any equivalent overseas provisions, a hybrid payer deduction/non-inclusion mismatch would arise — meaning the payer gets a deduction but the corresponding income is not fully taxed in the payee's hands.
• There must be a connection between the parties: the hybrid payer is also a payee (for quasi-payments), the hybrid payer and a payee are in the same control group at any time from when the arrangement is made until the end of the payment period, or the arrangement is a structured arrangement.
• An arrangement is "structured" if it is designed to produce a hybrid payer mismatch, or its terms share the economic benefit of the mismatch between the parties — and this applies even if the arrangement also has a genuine commercial purpose.