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

Counteraction where the hybrid entity is within the charge to corporation tax

Section 259IC restricts the deductions a hybrid entity can claim against its UK corporation tax profits where the same expense has also been deducted overseas, and the primary counteraction at the investor level has not fully addressed the mismatch.

• Where a hybrid entity is within UK corporation tax and no equivalent overseas rule has denied the investor's duplicate deduction (or has only partly done so), the hybrid entity's own deduction is restricted so that it can only be offset against "dual inclusion income" — income taxed both in the UK and in the investor's jurisdiction.
• The restriction applies only where the hybrid entity and its investor are in the same control group, or where the arrangement is a structured arrangement designed to produce the mismatch.
• Any restricted deduction that cannot be used in the current period is carried forward and may be set against the hybrid entity's dual inclusion income of later periods; if no future dual inclusion income will arise, the "stranded deduction" may instead be deducted from the hybrid entity's total taxable profits.
• If all or part of the hybrid entity double deduction amount is also deducted overseas by someone other than an investor against income that is not dual inclusion income, that amount (the "illegitimate overseas deduction") is treated as already used up, further reducing the deduction available to the hybrid entity in the UK.

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