835AM Payment by hybrid entity deduction without inclusion mismatch outcome.

(1) Subject to subsection (2), a payment by a hybrid entity deduction without inclusion mismatch outcome shall arise in respect of a payment by a hybrid entity where—

(a) there is, or but for this section would be, a deduction in respect of a payment 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 the payment being disregarded under the laws of the payee territory.

(2) A payment by a hybrid entity deduction without inclusion mismatch outcome shall not arise to the extent the payment referred to in subsection (1) is, or would be, deductible against dual inclusion income.

(3) A payment by a hybrid entity 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 subsection (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.