Finance (No. 2) Bill (HC Bill 155)

(2) Sub-paragraph (3) applies where a company has an accounting period
beginning before 1 April 2016 and ending on or after that date (“the
straddling period”).

(3) For the purposes of Part 15D of CTA 2009—

(a) 5so much of the straddling period as falls before 1 April 2016, and so
much of that period as falls on or after that date, are separate
accounting periods, and

(b) any amounts brought into account for the purposes of calculating for
corporation tax purposes the profits of a trade for the straddling
10period are apportioned to the two separate accounting periods on
such basis as is just and reasonable.

18 (1) The amendments made by paragraphs 13 to 15 of this Schedule have effect
in relation to accounting periods beginning on or after the first day of the
financial year appointed by the Treasury by regulations under section 5(3)
15of the Corporation Tax (Northern Ireland) Act 2015 (“the commencement
day”).

(2) Sub-paragraph (3) applies where a company has an accounting period
beginning before the commencement day and ending on or after that day
(“the straddling period”).

(3) 20For the purposes of Chapter 14A of Part 8B of CTA 2010—

(a) so much of the straddling period as falls before the commencement
day, and so much of that period as falls on or after that day, are
separate accounting periods, and

(b) any amounts brought into account for the purposes of calculating for
25corporation tax purposes the profits of a trade for the straddling
period are apportioned to the two separate accounting periods on
such basis as is just and reasonable.

Section 60

SCHEDULE 9 Profits from the exploitation of patents etc: consequential

1 30CTA 2010 is amended in accordance with this Schedule.

2 In the heading of Chapter 3 of Part 8A, after “profits” insert “: cases
mentioned in section 357A(7): no income from new IP”.

3 (1) Section 357C (relevant IP profits) is amended as follows.

(2) Before subsection (1) insert—

“(A1) 35This section applies for the purposes of determining the relevant IP
profits of a trade of a company for an accounting period in a case
where—

(a) the accounting period began before 1 July 2021,

(b) the company is not a new entrant (see section 357A(11)), and

(c) 40none of the amounts of relevant IP income brought into
account as credits in calculating the profits of the trade for the
accounting period is properly attributable to a new
qualifying IP right (see section 357BP).

But see also section 357D (alternative method of calculating relevant
IP profits in such a case).”

(3) In subsection (1)—

(a) in the words before Step 1, omit “of a trade of a company for an
5accounting period”,

(b) in Step 2, for “357CC and 357CD” substitute “357BH to 357BHC”,

(c) in Step 4, after “routine return figure” insert “in relation to the trade
for the accounting period”,

(d) in Step 5, for “elected” substitute “made an election under section
10357CL”, and

(e) in Step 6, after “marketing assets return figure” insert “in relation to
the trade for the accounting period”.

4 In section 357CA (total gross income of a trade), in subsection (2), for
“section 357CB” substitute “section 357BG”.

5 15Omit sections 357CB to 357CF.

6 (1) Section 357CG (adjustments in calculating profits of trade) is amended as
follows.

(2) In subsection (1) after “determining” insert “under section 357C”.

(3) In subsection (4), in the words after paragraph (b), for “section 357CB”
20substitute “section 357BG”.

7 In section 357CI (routine return figure), in Step 1 in subsection (1), for
“sections 357CJ and 357CK” substitute “sections 357BJA and 357BJB”.

8 Omit sections 357CJ and 357CK.

9 In section 357CL (companies eligible to elect for small claims treatment), in
25subsection (1), for “elect” substitute “make an election under this section”.

10 In section 357CM (small claims amount), in subsection (1), for “elects”
substitute “makes an election under section 357CL”.

11 (1) Section 357D (alternative method of calculating relevant IP profits:
“streaming”) is amended as follows.

(2) 30In subsection (1) at the end insert “in a case where—

(a) the accounting period began before 1 July 2021,

(b) the company is not a new entrant (see section 357A(11)), and

(c) none of the amounts of relevant IP income brought into
account as credits in calculating the profits of the trade for the
35accounting period is properly attributable to a new
qualifying IP right (see section 357BP).”

(3) For subsection (4) substitute—

“(4) A company must apply section 357DA (instead of section
357C) for the purposes of determining the relevant IP profits
40of a trade of the company for an accounting period in a case
mentioned in subsection (1) if any of the mandatory
streaming conditions in section 357DC is met in relation to
the trade for the period.”

12 (1) Section 357DA (relevant IP profits) is amended as follows.

(2) In subsection (1)—

(a) in Step 1—

(i) for “section 357CB” substitute “section 357BG”, and

(ii) for “sections 357CC and 357CD” substitute “sections 357BH
5to 357BHC”,

(b) in Step 4, after “routine return figure” insert “in relation to the trade
for the accounting period”,

(c) in Step 5, for “elected” substitute “made an election under section
357CL”, and

(d) 10in Step 6, after “marketing assets return figure” insert “in relation to
the trade for the accounting period”.

(3) In subsection (4), in the words after paragraph (b), for “sections 357CJ and
357CK” substitute “sections 357BJA and 357BJB”.

13 (1) Section 357DC (the mandatory streaming conditions) is amended as follows.

(2) 15In subsection (8)(a) for “section 357CC” substitute “section 357BH”.

(3) In subsection (9)(a) for “section 357CC(6)” substitute “section 357BH(6)”.

14 In section 357FA (incorporation of qualifying items), in subsection (2), for
“357CC(2)” substitute “357BH(2)”.

15 (1) Section 357GB (application of Part 8A in relation to partnerships) is
20amended as follows.

(2) In subsection (11)—

(a) in the words before paragraph (a), after “Sections” insert “357BK,
357BKA”, and

(b) in paragraph (a) after “section” insert “357BK or”.

(3) 25In subsection (12) for “section 357CB(1)(c)” substitute “section 357BG(1)(c)”.

16 In section 357GC (application of Part 8A in relation to cost-sharing
arrangements), in subsection (3), for “section 357CB(1)(c)” substitute
“section 357BG(1)(c)”.

17 In Schedule 4 (index of defined expressions)—

(a) 30for the entry for “finance income (in Part 8A)” substitute—

(b) after the entry for “new consideration (in Part 23)” insert—

(c) for the entry for “relevant IP income (in Part 8A)” substitute—

Section 62

SCHEDULE 10 Hybrid and other mismatches

Part 1 Main provisions

1 5In TIOPA 2010, after Part 6 insert—

““Part 6A Hybrid and other mismatches

CHAPTER 1 Introduction

259A Overview of Part

(1) 10This Part has effect for the purposes of counteracting certain cases
that it is reasonable to suppose would otherwise give rise to—

(a) a deduction/non-inclusion mismatch, or

(b) a double deduction mismatch.

(2) A deduction/non-inclusion mismatch arises where an amount is
15deductible from a person’s income—

(a) without a corresponding amount of ordinary income arising
to another person, or

(b) where an amount of ordinary income does arise to a person
but is under taxed.

(3) 20A double deduction mismatch arises where—

(a) an amount is deductible from more than one person’s
income, or

(b) an amount is deductible from a person’s income for the
purposes of more than one tax.

(4) 25The cases with which this Part is concerned involve—

(a) payments or quasi-payments under or in connection with
financial instruments or repos, stock lending arrangements
or other transfers of financial instruments,

(b) hybrid entities,

(c) 30companies with permanent establishments, or

(d) dual resident companies.

(5) This Part counteracts mismatches that would otherwise arise by
making certain adjustments to a person’s treatment for corporation
tax purposes.

(6) 35Chapter 2 contains some key definitions for the purposes of this Part,
see in particular—

(a) section 259B which provides that “tax” means income tax,
corporation tax on income, the diverted profits tax, the CFC
charge, foreign tax or a foreign CFC charge,

(b) section 259BB which defines “payment”, “quasi-payment”,
“payment period”, “relevant deduction”, “payer”, “payee”,
and “payee jurisdiction”,

(c) section 259BC which defines “ordinary income” and “taxable
5profits”, in relation to taxes other than the CFC charge and
foreign CFC charges,

(d) section 259BD which contains corresponding provision for
the CFC charge and foreign CFC charges,

(e) section 259BE which defines “hybrid entity” and other
10related terms, and

(f) section 259BF which defines “permanent establishment”.

(7) Chapter 3 contains provision for the counteraction of certain
deduction/non-inclusion mismatches arising from payments or
quasi-payments under, or in connection with, financial instruments.

(8) 15Chapter 4 contains provision for the counteraction of certain
deduction/non-inclusion mismatches arising from payments or
quasi-payments and involving certain repos, stock lending
arrangements or other arrangements for, or relating to, transfers of
financial instruments.

(9) 20Chapter 5 contains provision for the counteraction of certain
deduction/non-inclusion mismatches arising from payments or
quasi-payments in relation to which the payer is a hybrid entity.

(10) Chapter 6 contains provision for the counteraction of certain
deduction/non-inclusion mismatches arising in relation to internal
25transfers of money or money’s worth made, or treated as made, by a
permanent establishment of a multinational company to the territory
in which the company is resident for tax purposes.

(11) Chapter 7 contains provision for the counteraction of certain
deduction/non-inclusion mismatches arising from payments or
30quasi-payments in relation to which a payee is a hybrid entity.

(12) Chapter 8 contains provision for the counteraction of certain
deduction/non-inclusion mismatches arising from payments or
quasi-payments in relation to which a payee is a multinational
company.

(13) 35Chapter 9 contains provision for the counteraction of certain double
deduction mismatches arising from a company being a hybrid entity.

(14) Chapter 10 contains provision for the counteraction of certain double
deduction mismatches involving dual resident companies or
relevant multinational companies.

(15) 40Chapter 11 contains provision about imported mismatches.

(16) Chapter 12 contains provision—

(a) for adjustments to be made where a reasonable supposition
made for the purposes of this Part turns out to be mistaken or
otherwise ceases to be reasonable, and

(b) 45for deductions from taxable total profits to be made where a
relevant deduction has been denied under certain provisions

of this Part and amounts of ordinary income arise later than
is permitted.

(17) Chapter 13 contains anti-avoidance provision.

(18) Chapter 14 contains definitions and other provision about the
5interpretation of this Part.

(19) Each of Chapters 3 to 10 contains provision specifying that some or
all of this Part (and any corresponding provision under the law of a
territory outside the United Kingdom) is to be disregarded when
determining whether a mismatch arises for the purposes of that
10Chapter and, if so, in what amount, see—

(a) section 259CA(4) and (5),

(b) section 259DA(5),

(c) section 259EA(5) and (6),

(d) section 259FA(4), (5) and (7),

(e) 15section 259GA(5) and (6),

(f) section 259HA(6) and (7),

(g) section 259IA(2) and (3), and

(h) section 259JA(5).

(20) The effect of the provisions mentioned in subsection (19) is that
20Chapters 3 to 10 (or any corresponding provision under the law of a
territory outside the United Kingdom) have effect in the following
sequence—

(a) Chapter 4,

(b) Chapter 3,

(c) 25Chapter 5,

(d) Chapter 6,

(e) Chapter 7,

(f) Chapter 8,

(g) Chapter 9, and

(h) 30Chapter 10.

CHAPTER 2 Key definitions

Meaning of “tax”

259B “Tax” means certain taxes on income and includes foreign tax etc

(1) In this Part “tax” means—

(a) 35income tax,

(b) the charge to corporation tax on income,

(c) diverted profits tax,

(d) the CFC charge,

(e) foreign tax, or

(f) 40a foreign CFC charge.

(2) In subsection (1) “foreign tax” means a tax chargeable under the law
of a territory outside the United Kingdom so far as it—

(a) is charged on income and corresponds to United Kingdom
income tax, or

(b) is charged on income and corresponds to the United
Kingdom charge to corporation tax on income.

(3) 5A tax is not outside the scope of subsection (2) by reason only that
it—

(a) is chargeable under the law of a province, state or other part
of a country, or

(b) is levied by or on behalf of a municipality or other local body.

(4) 10In this Part—

• “CFC” and “the CFC charge” have the same meaning as in Part
  9A (see section 371VA);

• “foreign CFC charge” means a charge (by whatever name
  known) under the law of a territory outside the United
  15Kingdom which is similar to the CFC charge (and reference
  to a “foreign CFC” is to be read accordingly).

Equivalent provision to this Part under foreign law

259BA References to equivalent provision to this Part under the law of a
territory outside the United Kingdom

(1) 20A reference in this Part to provision under the law of a territory
outside the United Kingdom that is equivalent to—

(a) this Part, or

(b) a provision of this Part,

is to be read in accordance with subsection (2).

(2) 25The reference is to provision under the law of a territory outside the
United Kingdom that it is reasonable to suppose—

(a) is based on the Final Report on Neutralising the Effects of
Hybrid Mismatch Arrangements published by the
Organisation for Economic Cooperation and Development
30(“OECD”) on 5 October 2015 or any replacement or
supplementary publication, and

(b) has effect for the same, or similar, purposes to this Part or (as
the case may be) the provision of this Part.

(3) In paragraph (a) of subsection (2) “replacement or supplementary
35publication” means any document that is approved and published
by the OECD in place of, or to update or supplement, the report
mentioned in that paragraph (or any replacement of, or supplement
to, it).

Payments and quasi-payments etc

259BB 40 Meaning of “payment”, “quasi-payment”, “payer”, “payee” etc

(1) In this Part “payment” means any transfer—

(a) of money or money’s worth directly or indirectly from one
person (“the payer”) to one or more other persons, and

(b) in relation to which (disregarding this Part and any
45equivalent provision under the law of a territory outside the

United Kingdom) an amount (a “relevant deduction”) may be
deducted from the payer’s income for a taxable period (the
“payment period”) for the purposes of calculating the payer’s
taxable profits.

(2) 5For the purposes of this Part, there is a “quasi-payment”, in relation
to a taxable period (the “payment period”) of a person (“the payer”),
if (disregarding this Part and any equivalent provision under the law
of a territory outside the United Kingdom)—

(a) an amount (a “relevant deduction”) may be deducted from
10the payer’s income for that period for the purposes of
calculating the payer’s taxable profits, and

(b) making the assumptions in subsection (4), it would be
reasonable to expect an amount of ordinary income to arise to
one or more other persons as a result of the circumstances
15giving rise to the relevant deduction.

(3) But a quasi-payment does not arise under subsection (2) if—

(a) the relevant deduction is an amount that is deemed, under
the law of the payer jurisdiction, to arise for tax purposes, and

(b) the circumstances giving rise to the relevant deduction do not
20include any economic rights, in substance, existing between
the payer and a person mentioned in subsection (2)(b).

(4) The assumptions are that (so far as would not otherwise be the
case)—

(a) any question as to whether an entity is a distinct and separate
25person from the payer is determined in accordance with the
law of the payer jurisdiction,

(b) any persons to whom amounts arise, or potentially arise, as a
result of the circumstances giving rise to the relevant
deduction adopt the same approach to accounting for those
30circumstances as the payer, and

(c) any persons to whom amounts arise, or potentially arise, as a
result of those circumstances—

(i) are, under the law of the payer jurisdiction, resident
in that jurisdiction for tax purposes, and

(ii) 35carry on a business, in connection with which those
circumstances arise, in the payer jurisdiction.

(5) In this Part—

(a) references to a quasi-payment include all the circumstances
giving rise to the relevant deduction mentioned in subsection
40(2)(a), and

(b) references to a quasi-payment being made are to those
circumstances arising.

(6) In this Part “payee” means—

(a) in the case of a payment, any person—

(i) 45to whom the transfer is made as mentioned in
subsection (1)(a), or

(ii) to whom an amount of ordinary income arises as a
result of the payment, and

(b) in the case of a quasi-payment, any person—

(i) to whom it would be reasonable to expect an amount
of ordinary income to arise as mentioned in
subsection (2)(b), or

(ii) to whom an amount of ordinary income arises as a
5result of the quasi-payment.

(7) For the purposes of this Part, in the case of a quasi-payment, the
payer is “also a payee” if—

(a) an entity is not a distinct and separate person from the payer
for the purposes of a tax charged under the law of the United
10Kingdom,

(b) that entity is a distinct and separate person from the payer for
the purposes of a tax charged under the law of the payer
jurisdiction, and

(c) it would be reasonable to expect an amount of ordinary
15income to arise to that entity as mentioned in subsection
(2)(b).

(8) In this section “payer jurisdiction” means the jurisdiction under the
law of which the relevant deduction may (disregarding this Part and
any equivalent provision under the law of a territory outside the
20United Kingdom) be deducted.

(9) In this Part “payee jurisdiction”, in relation to a payee, means a
territory in which—

(a) the payee is resident for tax purposes under the law of that
territory, or

(b) 25the payee has a permanent establishment.

Ordinary income

259BC The basic rules

(1) This section has effect for the purposes of this Part.

(2) “Ordinary income” means income that is brought into account,
30before any deductions, for the purposes of calculating the income or
profits on which a relevant tax is charged (“taxable profits”).

(3) But an amount of income is not brought into account for those
purposes to the extent that it is excluded, reduced or offset by any
exemption, exclusion, relief or credit—

(a) 35that applies specifically to all or part of the amount of income
(as opposed to ordinary income generally), or

(b) that arises as a result of, or otherwise in connection with, a
payment or quasi-payment that gives rise to the amount of
income.

(4) 40If all the relevant tax charged on taxable profits is, or falls to be,
refunded, none of the income brought into account in calculating
those taxable profits is “ordinary income”.

(5) If a proportion of the relevant tax charged on taxable profits is, or
falls to be, refunded, the amount of any income brought into account
45in calculating those taxable profits that is “ordinary income” is
proportionally reduced.

(6) For the purposes of subsections (4) and (5) an amount of relevant tax
is refunded if and to the extent that—

(a) any repayment of relevant tax, or any payment in respect of
a credit for relevant tax, is made to any person, and

(b) 5that repayment or payment is directly or indirectly in respect
of the whole or part of the amount of relevant tax,

but an amount refunded is to be ignored if and to the extent that it
results from qualifying loss relief.

(7) In subsection (6) “qualifying loss relief” means—

(a) 10any means by which a loss might be used for corporation tax
or income tax purposes to reduce the amount in respect of
which a person is liable to tax, or

(b) any corresponding means by which a loss corresponding to a
relevant tax loss might be used for the purposes of a relevant
15tax other than corporation tax or income tax to reduce the
amount in respect of which a person is liable to tax,

(and in paragraph (b) “relevant tax loss” means a loss that might be
used as mentioned in paragraph (a)).

(8) References to an amount of ordinary income being “included in”
20taxable profits are to that amount being brought into account for the
purposes of calculating those profits.

(9) In this section “relevant tax” means a tax other than the CFC charge
or a foreign CFC charge.

(10) Section 259BD contains provision for ordinary income to arise to
25chargeable companies by virtue of the CFC charge or a foreign CFC
charge.

259BD Chargeable companies in respect of CFCs and foreign CFCs

(1) This section has effect for the purposes of this Part.

(2) Subsections (3) to (7) apply where an amount of income arises to an
30entity (“C”) that is a CFC, a foreign CFC or both and all or part of that
amount (the “relevant income”)—

(a) is not ordinary income of C under section 259BC, or

(b) arises as a result of a payment or quasi-payment under, or in
connection with, a financial instrument or hybrid transfer
35arrangement and—

(i) is (disregarding subsection (4)) ordinary income of C
under section 259BC for a taxable period, but

(ii) under taxed.

(3) The following steps determine whether, and to what extent, the
40relevant income is “ordinary income” of a chargeable company in
relation to the CFC charge or a foreign CFC charge.

Step 1

Determine—

(a) whether any of the relevant income is brought into account in
45calculating C’s chargeable profits for the purposes of the CFC
charge or a foreign CFC charge, and