Revenue Note for Guidance
Section 835AB provides certain circumstances where payments that are effectively ignored under a worldwide system of taxation (or an effective worldwide system of taxation) referred to as disregarded payments shall be treated as included so that a technical hybrid mismatch does not occur where, in substance, one should not.
(1) Disregarded payments
This section provides the meaning for “disregarded payments” for the purposes of this section. Essentially, where an entity is subject to a worldwide system of taxation, similar to the Irish provision section 26(1) TCA 1997, certain payments between it and certain connected parties are effectively ignored for the purposes of calculating their taxable income. For the purposes of this section these ignored payments are referred to as “disregarded payments” and specifically cover;
(2) Disregarded payment treated as included in certain circumstances
Where:
(a) the investor or payee are subject to a worldwide system of tax such that certain payments are disregarded payments as defined in subsection (1),
(b) the payer obtains a tax deduction in respect of a payment but the income against which that payment is deducted is treated as a disregarded payment by the payee or investor such that a technical mismatch outcome would arise
then that disregarded payment will be treated as included by the investor or payee so that such a technical mismatch will not arise.
By treating the disregarded payment as included by the investor or payee a mismatch outcome will not arise either because
(3) This section shall not apply where:
(b) Essentially, this is a principle-based test whereby this section shall not apply where there is, in substance, a hybrid mismatch either under the Directive or under the relevant OECD reports set out in section 835Z(2).
Relevant Date: Finance Act 2019