What does section 496 of TIOPA 2010 allow regarding capital market arrangements?

Section 496 empowers HMRC to make regulations enabling a UK group company that is party to a capital market arrangement — such as a securitisation SPV — to transfer its hybrid mismatch corporation tax liability to another UK group company. Both companies must agree through a joint election filed within the required deadline.

Why is the transfer of corporation tax liability necessary for capital market arrangements?

Capital market arrangements typically use special purpose vehicles with very limited resources not designed to bear unexpected tax liabilities. If a hybrid mismatch charge arises on such an SPV, it may be unable to pay. Section 496 allows the liability to be shifted to another UK group company that can meet the obligation.

What conditions and safeguards apply to joint elections under section 496?

Regulations may impose conditions including a deadline for the election, which could fall before the relevant accounting period begins. HMRC officers may accept, reject, or revoke elections. Where an election is revoked, the regulations address the consequences, including the handling of associated interest charges or penalties linked to the transferred liability.

What is the meaning of capital market arrangement under section 496?

The term takes its meaning from section 72B(1) of the Insolvency Act 1986, as further defined in Schedule 2A to that Act. It broadly covers arrangements involving the issue of a capital market investment — typically debt securities listed or traded on a recognised market — entered into for the purpose of raising finance.

Taxation (International and Other Provisions) Act 2010 section 496

Parties to capital market arrangements

Section 496 allows HMRC to make regulations enabling a UK group company that is party to a capital market arrangement to transfer its corporation tax liability under this Part to another UK group company by joint election.

Where a UK group company has a corporation tax liability arising under the hybrid mismatch rules and is party to a capital market arrangement, HMRC may make regulations allowing it to transfer that liability to another UK group company through a joint election.
The regulations may set conditions for the election, including a deadline by which it must be made — potentially before the accounting period in which the liability arises.
HMRC officers may be given powers to accept, reject or revoke elections, and the regulations may deal with the consequences of any such revocation.
The regulations may also address what happens to other related liabilities (such as interest or penalties) when the corporation tax liability itself is transferred.

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