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

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

Section 259EC sets out the primary counteraction for hybrid payer deduction/non-inclusion mismatches where the hybrid payer is within the charge to UK corporation tax, restricting the deduction to dual inclusion income and allowing unused amounts to be carried forward.

• The deduction claimed by the hybrid payer is restricted to the amount of the mismatch and can only be set against "dual inclusion income" — income that is taxed both in the UK and in an investor's jurisdiction.
• Any part of the restricted deduction that cannot be used in the payment period is carried forward and may be set against dual inclusion income in future accounting periods, on a first-available-year basis.
• Dual inclusion income includes not only actual ordinary income of an investor but also amounts that would be deductible by the investor if the payer were not treated as a hybrid entity in the investor's jurisdiction, subject to conditions about non-deductibility elsewhere.
• Relevant taxable periods for testing these conditions generally must begin within 12 months after the end of the payer's accounting period, unless it is just and reasonable for a later period to apply.