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

Counteraction of the multinational payee deduction/non-inclusion mismatch

Section 259HC sets out how HMRC counteracts hybrid mismatches that arise when a multinational company obtains a tax deduction for a payment but the corresponding income is not fully taxed, particularly in scenarios involving disregarded permanent establishments.

• Where the mismatch arises because of a disregarded permanent establishment (Condition C, paragraph (b) of section 259HA(5)), an amount equal to the mismatch is treated as income arising to the multinational company in the UK for the payment period
• That deemed income is treated as arising in the UK and nowhere else, ensuring it is brought within the charge to UK corporation tax
• In all other cases, the counteraction works differently: the payer's tax deduction for the payment period is reduced by the amount of the mismatch
• Both methods of counteraction apply solely for corporation tax purposes and aim to neutralise the tax advantage created by the deduction/non-inclusion mismatch