835AM Payment by hybrid entity deduction without inclusion mismatch outcome

Summary

This section sets out what is meant by a payment by hybrid entity deduction without inclusion mismatch outcome and provides the rules to neutralise such an outcome.

Details

(1) Payment by hybrid entity deduction without inclusion mismatch outcome

A payment by hybrid entity deduction without inclusion mismatch outcome shall arise where –

• (a) there is a tax deduction in respect of a payment in the payer territory without a corresponding amount being included in the payee territory, and
• (b) the reason why the amount is not included in the payee territory is because the payment is ignored under the laws of the payee territory.

(2) Dual inclusion income

A mismatch outcome shall not arise under this section where the payment is deductible by the payer against income that is also included in the payee territory.

(3) The rule(s) for neutralising the payment by a hybrid entity deduction without inclusion mismatch outcome.

(3)(a) The primary rule

Where the State is the payer territory, the payer shall be denied a tax deduction to the extent a corresponding amount is not included for the purposes of foreign tax.

(3)(b) The defensive rule

Where

1. the State is the payee territory and
2. the mismatch outcome has not been neutralised in the payer territory, then –
1. where the income is not included because of any provision of the Tax Acts or the Capital Gains Tax Acts, then the specific part of that provision shall be disapplied in calculating the payee’s taxable income, and
2. in any other case, the payee shall be charged to tax under Case IV of Schedule D, in respect of the amount deducted by the payer, and this amount shall be taxed in the period which commences within twelve months of the end of the payer’s tax period in which the deduction occurred.

Relevant Date: Finance Act 2019