835AJ Financial instrument deduction without inclusion mismatch outcome.

(1) A financial instrument deduction without inclusion mismatch outcome shall arise where it would be reasonable to consider that—

(a) there is, or but for this section would be, a deduction in the payer territory, without a corresponding amount being included in the payee territory, and

(b) the satisfaction of the condition described in paragraph (a) is attributable to differences between domestic tax and foreign tax in the characterisation of—

(i) a financial instrument, or

(ii) payments made under a financial instrument.

(2) A financial instrument deduction without inclusion mismatch outcome shall be neutralised as follows:

(a) where the State is the payer territory, notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, the payer shall be denied a deduction for the payment for the purposes of domestic tax, to the extent a corresponding amount has not been included for the purposes of foreign tax;

(b) where—

(i) the State is the payee territory, and

(ii) a deduction has not been denied in the payer territory through the operation of a provision similar to paragraph (a),

then—

(I) in a case in which the non-inclusion arises because of any provision of the Tax Acts or the Capital Gains Tax Acts, in calculating the amount on which the payee is charged to tax, that provision shall be disapplied, insofar as it provides for the non-inclusion, and

(II) in any other case, the payee shall be charged to tax under Case IV of Schedule D, in respect of the amount of the deduction, in the first of the payee’s tax periods to commence within twelve months of the end of the payer’s tax period in which the deduction occurred.