Finance Act 2018

Hybrid entity double deduction mismatches: use of restricted deduction U.K.

13 U.K. In section 259IC(4) (counteraction where the hybrid entity is within the charge to corporation tax), for the words from “unless” to the end substitute “unless it is deducted from—

(c) dual inclusion income for that period, or

(d) section 259ID income for that period.”

14 U.K. After section 259IC insert—

“259ID Section 259ID income for the purposes of section 259IC

(1) This section applies where—

(a) section 259IC applies,

(b) the restricted deduction exceeds the dual inclusion income of the hybrid entity (if any) for the hybrid entity deduction period, and

(c) conditions A to D are met.

(2) Condition A is that—

(a) the investor in the hybrid entity makes a payment to the hybrid entity, and

(b) no amount is deductible, under the law of the investor jurisdiction, from the income of the investor in respect of the payment.

(3) Condition B is that, as a result of the payment, an amount of ordinary income arises to the hybrid entity for the hybrid entity deduction period.

(4) Condition C is that the payment is made in direct consequence of a payment made to the investor by a person (“the unrelated party”) who is not related (see section 259NC) to the investor or the hybrid entity.

(5) Condition D is that, as a result of the payment made by the unrelated party, an amount of ordinary income arises to the investor.

(6) For the purposes of section 259IC “section 259ID income” is an amount of income of the hybrid entity equal to the lesser of—

(a) the amount of the payment made by the investor to the hybrid entity, and

(b) the amount of the payment made by the unrelated party to the investor.”