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

Circumstances in which the Chapter applies

Section 259FA sets out the three conditions (A to C) that must all be met for the hybrid mismatch rules in Chapter 6 to apply, targeting situations where a permanent establishment in the UK claims a tax deduction for a transfer to its overseas head office but little or no corresponding taxable income arises in the head office's jurisdiction.

• Condition A requires the company to be a "multinational company" — meaning it is tax-resident outside the UK (the "parent jurisdiction") but also within the charge to UK corporation tax because it trades through a UK permanent establishment.
• Condition B requires that the UK permanent establishment can claim a tax deduction (the "PE deduction") for an actual or deemed transfer of money or money's worth from the UK permanent establishment to the company in the parent jurisdiction, excluding notional financing costs of assumed loan capital and amortisation of intangible fixed assets.
• Condition C requires that it is reasonable to suppose that the PE deduction either produces no corresponding increase in taxable profits (or reduction of losses) in the parent jurisdiction, or that the PE deduction exceeds the total of any such increases and loss reductions — with any taxable period where tax is charged at a nil rate being ignored.
• The "excessive PE deduction" is either the whole PE deduction (where there is no corresponding taxable pickup in the parent jurisdiction) or the portion by which it exceeds the aggregate effect on the parent jurisdiction's taxable profits — and Section 259FB provides the counteraction mechanism.