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

Counteraction where the investor is within the charge to corporation tax

Section 259IB restricts how an investor within the charge to UK corporation tax can use a double deduction that arises through a hybrid entity, ensuring the deduction can generally only be set against income that is taxed in both the UK and overseas.

• The hybrid entity double deduction amount can only be deducted from the investor's dual inclusion income — that is, income taxed both in the UK and in the overseas territory where the hybrid entity is subject to tax.
• Any part of the double deduction that cannot be used against dual inclusion income in the current period is carried forward and can only be set against dual inclusion income in future periods, unless no further dual inclusion income will arise, in which case the "stranded deduction" can be set against the investor's taxable total profits more broadly.
• If part of the double deduction is used overseas against income that is not dual inclusion income (an "illegitimate overseas deduction"), the amount available to the investor for UK purposes is reduced accordingly — it is treated as if it had already been used in a prior period.
• Dual inclusion income must be ordinary income of the investor for UK corporation tax purposes and also ordinary income of the hybrid entity for overseas tax purposes in a permitted taxable period, which generally must begin within 12 months of the end of the investor's relevant UK accounting period.

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