Revenue Note for Guidance

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Revenue Note for Guidance

835AB Worldwide system of taxation

Summary

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.

Details

(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;

  1. payments between the head office and a permanent establishment of the entity,
  2. payments between two or more permanent establishments of the entity,
  3. where the entity is a participator in a hybrid entity, payments between the entity and the hybrid entity, and
  4. where the entity is a participator in two or more hybrid entities, payments between those two or more hybrid entities.

(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

  1. there is now dual inclusion income i.e. an amount of income is treated as included in both territories to the transaction, or
  2. the payment does not result in a deduction without inclusion mismatch.

(3) This section shall not apply where:

  • (a) the disregarded payments are between:
    • where the entity referred to in subsection (1) is a participator in a hybrid entity, the participator and the hybrid entity, or
    • where the entity referred to in subsection (1) is a participator in two or more hybrid entities, two or more such hybrid entities, and
  • there is, in substance, a hybrid mismatch, within the meaning of the Directive (EU) 2016/1164 or within the meaning of the term hybrid mismatch when construed in accordance with the reports referred to in section 835Z(2).

(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