Finance Bill (HC Bill 47)

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CHAPTER 8 Multinational payee deduction/non-inclusion mismatches
Introduction
259H Overview of Chapter

(1) This Chapter contains provision that counteracts deduction/non-
5inclusion mismatches that it is reasonable to suppose would
otherwise arise from payments or quasi-payments because a payee is
multinational company.

(2) The Chapter counteracts mismatches by altering the corporation tax
treatment of the payer or a payee.

(3) 10Section 259HA contains the conditions that must be met for this
Chapter to apply.

(4) Subsection (4) of that section defines “multinational company”,
“parent jurisdiction” and “PE jurisdiction”.

(5) Section 259HB defines “multinational payee deduction/non-
15inclusion mismatch” and provides how the amount of the mismatch
is to be calculated.

(6) Section 259HC contains provision that counteracts the mismatch
where the payer is within the charge to corporation tax for the
payment period.

(7) 20Section 259HD contains provision that counteracts the mismatch
where the United Kingdom is the parent jurisdiction and neither
section 259HC nor any equivalent provision under the law of a
territory outside the United Kingdom fully counteracts the
mismatch.

(8) 25See also—

(a) section 259BB for the meaning of “payment”, “quasi-
payment”, “payment period”, “relevant deduction”, “payer”
and “payee”;

(b) section 259BF for the meaning of “permanent establishment”.

30Application of Chapter
259HA Circumstances in which the Chapter applies

(1) This Chapter applies if conditions A to E are met.

(2) Condition A is that a payment or quasi-payment is made under, or
in connection with, an arrangement.

(3) 35Condition B is that a payee is a multinational company.

(4) For the purposes of this Chapter, a company is a “multinational
company” if—

(a) it is resident in a territory (“the parent jurisdiction”) for tax
purposes under the law of that territory, and

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(b) it is regarded as carrying on a business in another territory
(“the PE jurisdiction”) through a permanent establishment in
that territory (whether it is so regarded under the law of the
parent jurisdiction, the PE jurisdiction or any other territory).

(5) 5Condition C is that—

(a) the payer is within the charge to corporation tax for the
payment period, or

(b) the multinational company is within the charge to
corporation tax for an accounting period some or all of which
10falls within the payment period.

(6) Condition D is that it is reasonable to suppose that, disregarding the
provisions mentioned in subsection (7), there would be a
multinational payee deduction/non-inclusion mismatch in relation
to the payment or quasi-payment (see section 259HB).

(7) 15The provisions are—

(a) this Chapter and Chapters 9 and 10, and

(b) any equivalent provision under the law of a territory outside
the United Kingdom.

(8) Condition E is that—

(a) 20it is a quasi-payment that is made as mentioned in subsection
(2) and the payer is also a payee (see section 259BB(7)),

(b) the payer and the multinational company are in the same
control group (see section 259NA) at any time in the period—

(i) beginning with the day on which the arrangement
25mentioned in subsection (2) is made, and

(ii) ending with the last day of the payment period, or

(c) that arrangement is a structured arrangement.

(9) The arrangement is “structured” if it is reasonable to suppose that—

(a) the arrangement is designed to secure a multinational
30company deduction/non-inclusion mismatch, or

(b) the terms of the arrangement share the economic benefit of
the mismatch between the parties to the arrangement or
otherwise reflect the fact that the mismatch is expected to
arise.

(10) 35The arrangement may be designed to secure a multinational payee
deduction/non-inclusion mismatch despite also being designed to
secure any commercial or other objective.

(11) Sections 259HC (cases where the payer is within the charge to
corporation tax for the payment period) and 259HD (cases where the
40UK is the parent jurisdiction and the multinational company is
within the charge to corporation tax) contain provision for the
counteraction of the multinational payee deduction/non-inclusion
mismatch.

259HB Multinational payee deduction/non-inclusion mismatches and their
45extent

(1) There is a “multinational payee deduction/non-inclusion
mismatch”, in relation to a payment or quasi-payment, if—

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(a) the relevant deduction exceeds the sum of the amounts of
ordinary income that, by reason of the payment or quasi-
payment, arise to each payee for a permitted taxable period,
and

(b) 5all or part of that excess arises by reason of one or more
payees being multinational companies.

(2) The extent of the multinational payee deduction/non-inclusion
mismatch is equal to the excess that arises as mentioned in
subsection (1)(b).

(3) 10For the purposes of subsection (1)(b) it does not matter whether the
excess or part arises for another reason as well (even if it would have
arisen for that other reason regardless of whether any payees are
multinational companies).

(4) A taxable period of a payee is “permitted” in relation to an amount
15of ordinary income that arises as a result of the payment or quasi-
payment if—

(a) the period begins before the end of 12 months after the end of
the payment period, or

(b) where the period begins after that—

(i) 20a claim has been made for the period to be a permitted
period in relation to the amount of ordinary income,
and

(ii) it is just and reasonable for the amount of ordinary
income to arise for that taxable period rather than an
25earlier period.

Counteraction
259HC Counteraction where the payer is within the charge to corporation tax
for the payment period

(1) This section applies where the payer is within the charge to
30corporation tax for the payment period.

(2) For corporation tax purposes, the relevant deduction that may be
deducted from the payer’s income for the payment period is reduced
by an amount equal to the multinational payee deduction/non-
inclusion mismatch mentioned in section 259HA(6).

259HD 35 Counteraction where UK is parent jurisdiction and the multinational
company is within the charge to corporation tax

(1) This section applies in relation to a payee that is a multinational
company where—

(a) the United Kingdom is the parent jurisdiction,

(b) 40the payee is within the charge to corporation tax for an
accounting period some or all of which falls within the
payment period, and

(c) it is reasonable to suppose that—

(i) neither section 259HC nor any equivalent provision
45under the law of a territory outside the United
Kingdom applies, or

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(ii) a provision of the law of a territory outside the United
Kingdom that is equivalent to section 259HC applies,
but does not fully counteract the multinational payee
deduction/non-inclusion mismatch mentioned in
5section 259HA(6).

(2) A provision of the law of a territory outside the United Kingdom that
is equivalent to section 259HC does not full counteract that mismatch
if (and only if)—

(a) it does not reduce the relevant deduction by the full amount
10of the mismatch, and

(b) the payer is still able to deduct some of the relevant
deduction from income in calculating taxable profits.

(3) In this section “the relevant amount” is—

(a) in a case where subsection (1)(c)(i) applies, an amount equal
15to the multinational payee deduction/non-inclusion
mismatch, or

(b) in a case where subsection (1)(c)(ii) applies, the lesser of—

(i) the amount by which that mismatch exceeds the
amount by which it is reasonable to suppose the
20relevant deduction is reduced by a provision of the
law of a territory outside the United Kingdom that is
equivalent to section 259HC, and

(ii) the amount of the relevant deduction that may still be
deducted as mentioned in subsection (2)(b).

(4) 25If the payee is the only payee that is a multinational company, the
relevant amount is to be treated as income arising to the payee for the
counteraction period.

(5) If there is more than one payee that is a multinational company, an
amount equal to the payee’s share of the relevant amount is to be
30treated as income arising to the payee for the counteraction period.

(6) The payee’s share of the relevant amount is to be determined by
apportioning that amount between all the payees that are
multinational companies on a just and reasonable basis, having
regard (in particular) to—

(a) 35any arrangements as to profit sharing that may exist between
some or all of the payees, and

(b) the extent to which it is reasonable to suppose that the
multinational payee deduction/non-inclusion mismatch
arises by reason of each payee being a multinational
40company.

(7) An amount of income that is treated as arising under subsection (4)
or (5) is chargeable under Chapter 8 of Part 10 of CTA 2009 (income
not otherwise charged) (despite section 979(2) of that Act).

(8) The “counteraction period” means—

(a) 45if an accounting period of the payee coincides with the
payment period, that accounting period, or

(b) otherwise, the first accounting period of the payee that is
wholly or partly within the payment period.

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CHAPTER 9 Hybrid entity double deduction mismatches
Introduction
259I Overview of Chapter

(1) This Chapter contains provision that counteracts double deduction
5mismatches that it is reasonable to suppose would otherwise arise by
reason of a person being a hybrid entity.

(2) The Chapter counteracts mismatches where the hybrid entity, or an
investor in the hybrid entity, is within the charge to corporation tax
and does so by altering the corporation tax treatment of the entity or
10investor.

(3) Section 259IA contains the conditions that must be met for this
Chapter to apply.

(4) Subsection (4) of that section defines “hybrid entity double
deduction amount”.

(5) 15Section 259IB contains provision that counteracts the mismatch
where an investor in the hybrid entity is within the charge to
corporation tax.

(6) Section 259IC contains provision that, in certain circumstances,
counteracts the mismatch where the hybrid entity is within the
20charge to corporation tax and the mismatch is not fully counteracted
by provision under the law of a territory outside the United
Kingdom that is equivalent to section 259IB.

(7) See also section 259BE for the meaning of “hybrid entity”, “investor”
and “investor jurisdiction”.

25Application of Chapter
259IA Circumstances in which the Chapter applies

(1) This Chapter applies if conditions A to C are met.

(2) Condition A is that there is an amount or part of an amount that,
disregarding the provisions mentioned in subsection (3), it is
30reasonable to suppose—

(a) could be deducted from the income of a hybrid entity for the
purposes of calculating the taxable profits of that entity for a
taxable period (“the hybrid entity deduction period”), and

(b) could also be deducted, under the law of the investor
35jurisdiction, from the income of an investor in the hybrid
entity for the purposes of calculating the taxable profits of
that investor for a taxable period (“the investor deduction
period”).

(3) The provisions are—

(a) 40this Chapter and Chapter 10, and

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(b) any equivalent provision under the law of a territory outside
the United Kingdom.

(4) In this Chapter the amount or part of an amount mentioned in
subsection (2) is referred to as “the hybrid entity double deduction
5amount”.

(5) Condition B is that—

(a) the investor is within the charge to corporation tax for the
investor deduction period, or

(b) the hybrid entity is within the charge to corporation tax for
10the hybrid entity deduction period.

(6) Condition C is that—

(a) the hybrid entity and any investor in it are related (see section
259NB) at any time—

(i) in the hybrid entity deduction period, or

(ii) 15in the investor deduction period, or

(b) an arrangement, to which the hybrid entity or any investor in
it is party, is a structured arrangement.

(7) An arrangement is “structured” if it is reasonable to suppose that—

(a) the arrangement is designed to secure the hybrid entity
20double deduction amount, or

(b) the terms of the arrangement share the economic benefit of
that amount being deductible by both the hybrid entity and
the investor between the parties to the arrangement or
otherwise reflect the fact that the amount is expected to arise.

(8) 25The arrangement may be designed to secure the hybrid entity double
deduction amount despite also being designed to secure any
commercial or other objective.

(9) Sections 259IB (cases where the investor is within the charge to
corporation tax for the investor deduction period) and 259IC (cases
30where the hybrid entity is within the charge to corporation tax for the
hybrid entity deduction period) contain provision for the
counteraction of the hybrid entity double deduction amount.

Counteraction
259IB Counteraction where the investor is within the charge to corporation
35tax

(1) This section applies in relation to the investor in the hybrid entity
where the investor is within the charge to corporation tax for the
investor deduction period.

(2) For corporation tax purposes, the hybrid entity double deduction
40amount may not be deducted from the investor’s income for the
investor deduction period unless it is deducted from dual inclusion
income of the investor for that period.

(3) So much of the hybrid entity double deduction amount (if any) as, by
virtue of subsection (2), cannot be deducted from the investor’s
45income for the investor deduction period—

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(a) is carried forward to subsequent accounting periods of the
investor, and

(b) for corporation tax purposes, may be deducted from dual
inclusion income of the investor for any such period (and not
5from any other income), so far as it cannot be deducted under
this paragraph for an earlier period.

(4) If the Commissioners are satisfied that the investor will have no dual
inclusion income—

(a) for an accounting period after the investor deduction period
10(“the relevant period”), nor

(b) for any accounting period after the relevant period,

any of the hybrid entity double deduction amount that has not been
deducted from dual inclusion income for an accounting period
before the relevant period in accordance with subsection (2) or (3)
15(“the stranded deduction”) may be deducted at step 2 in section 4(2)
of CTA 2010 in calculating the investor’s taxable total profits of the
relevant period.

(5) So much of the stranded deduction (if any) as cannot be deducted, in
accordance with subsection (4), at step 2 in section 4(2) of CTA 2010
20in calculating the investor’s taxable total profits of the relevant
period—

(a) is carried forward to subsequent accounting periods of the
investor, and

(b) may be so deducted for any such period, so far as it cannot be
25deducted under this paragraph for an earlier period.

(6) Subsection (7) applies if it is reasonable to suppose that all or part of
the hybrid entity double deduction amount is deducted (“the
illegitimate overseas deduction”), under the law of a territory
outside the United Kingdom, from income of any person, for a
30taxable period, that is not dual inclusion income.

(7) For the purposes of determining how much of the hybrid entity
double deduction amount may be deducted (if any) for the
accounting period of the investor in which the taxable period
mentioned in subsection (6) ends, and any subsequent accounting
35periods of the investor, an amount of it equal to the illegitimate
overseas deduction is to be taken to have already been deducted for
a previous accounting period of the investor.

(8) In this section “dual inclusion income” means an amount that is
both—

(a) 40ordinary income of the investor in the hybrid entity for
corporation tax purposes, and

(b) ordinary income of the hybrid entity for the purposes of any
tax under the law of a territory outside the United Kingdom.

259IC Counteraction where the hybrid entity is within the charge to
45corporation tax

(1) This section applies where—

(a) the hybrid entity is within the charge to corporation tax for
the hybrid entity deduction period,

(b) it is reasonable to suppose that—

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(i) no provision under the law of an investor jurisdiction
that is equivalent to section 259IB applies, or

(ii) such a provision does apply, but the hybrid entity
double deduction amount exceeds the amount that,
5under that provision, cannot be deducted from
income, for the investor deduction period, other than
dual inclusion income, and

(c) the secondary counteraction condition is met.

(2) The secondary counteraction condition is met if—

(a) 10the hybrid entity and any investor in it are in the same control
group (see section 259NA) at any time in—

(i) the hybrid entity deduction period, or

(ii) the investor deduction period, or

(b) there is an arrangement, to which the hybrid entity or any
15investor in it is party, that is a structured arrangement
(within the meaning given by section 259IA(7) and (8)).

(3) In this section “the restricted deduction” means—

(a) in a case where subsection (1)(b)(i) applies, the hybrid entity
double deduction amount, or

(b) 20in a case where subsection (1)(b)(ii) applies, the hybrid entity
double deduction amount so far as it exceeds the amount that
it is reasonable to suppose, under a provision of the law of a
territory outside the United Kingdom that is equivalent to
section 259IB, cannot be deducted from income, for the
25investor deduction period, other than dual inclusion income.

(4) For corporation tax purposes, the restricted deduction may not be
deducted from the hybrid entity’s income for the hybrid entity
deduction period unless it is deducted from dual inclusion income
for that period.

(5) 30So much of the restricted deduction (if any) as, by virtue of
subsection (4), cannot be deducted from the hybrid entity’s income
for the hybrid entity deduction period—

(a) is carried forward to subsequent accounting periods of the
hybrid entity, and

(b) 35for corporation tax purposes, may be deducted from dual
inclusion income of the hybrid entity for any such period
(and not from any other income), so far as it cannot be
deducted under this paragraph for an earlier period.

(6) If the Commissioners are satisfied that the hybrid entity will have no
40dual inclusion income—

(a) for an accounting period after the hybrid entity deduction
period (“the relevant period”), nor

(b) for any accounting period after the relevant period,

any of the restricted deduction that has not been deducted from dual
45inclusion income for an accounting period before the relevant period
in accordance with subsection (4) or (5) (“the stranded deduction”)
may be deducted at step 2 in section 4(2) of CTA 2010 in calculating
the hybrid entity’s taxable total profits of the relevant period.

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(7) So much of the stranded deduction (if any) as cannot be deducted, in
accordance with subsection (6), at step 2 in section 4(2) of CTA 2010
in calculating the hybrid entity’s taxable total profits of the relevant
period—

(a) 5is carried forward to subsequent accounting periods of the
hybrid entity, and

(b) may be so deducted for any such period, so far as it cannot be
deducted under this paragraph for an earlier period.

(8) Subsection (9) applies if it is reasonable to suppose that all or part of
10the hybrid entity double deduction amount is deducted (“the
illegitimate overseas deduction”), under the law of a territory
outside the United Kingdom, from income of any person, for a
taxable period, that is not dual inclusion income.

(9) For the purposes of determining how much of the hybrid entity
15double deduction amount may be deducted (if any) for the
accounting period of the hybrid entity in which the taxable period
mentioned in subsection (8) ends, and any subsequent accounting
periods of the hybrid entity, an amount of it equal to the illegitimate
overseas deduction is to be taken to have already been deducted for
20a previous accounting period of the hybrid entity.

(10) In this section “dual inclusion income” means an amount that is
both—

(a) ordinary income of the hybrid entity for corporation tax
purposes, and

(b) 25ordinary income of an investor in the hybrid entity for the
purposes of any tax charged under the law of an investor
jurisdiction.

CHAPTER 10 Dual territory double deduction cases
Introduction
259J 30Overview of Chapter

(1) This Chapter contains provision that counteracts double deduction
mismatches that it is reasonable to suppose would otherwise arise as
a result of a company—

(a) being a dual resident company, or

(b) 35being a relevant multinational company.

(2) The counteraction operates by altering the corporation tax treatment
of the company.

(3) Section 259JA contains the conditions that must be met for this
Chapter to apply.

(4) 40Subsection (3) of that section defines “dual resident company”.

(5) Subsection (4) of that section defines “relevant multinational
company”, “parent jurisdiction” and “PE jurisdiction”.

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(6) Subsection (5) of that section defines “dual territory double
deduction amount”.

(7) Section 259JB contains provision that counteracts the mismatch
where—

(a) 5the company is a dual resident company, or

(b) the company is a relevant multinational company and the
United Kingdom is the parent jurisdiction.

(8) Section 259JC contains provision that counteracts the mismatch
where the company is a relevant multinational company, the United
10Kingdom is the PE jurisdiction and the mismatch is not fully
counteracted under a provision of the law of a territory outside the
United Kingdom that is equivalent to section 259JB.

(9) See also section 259BF for the meaning of “permanent
establishment”.

15Application of Chapter
259JA Circumstances in which the Chapter applies

(1) This Chapter applies if conditions A and B are met.

(2) Condition A is that a company is a—

(a) dual resident company, or

(b) 20relevant multinational company.

(3) For the purposes of this Chapter a company is a “dual resident
company” if—

(a) it is UK resident, and

(b) it is also within the charge to a tax under the law of a territory
25outside the United Kingdom because—

(i) it derives its status as a company from that law,

(ii) its place of management is in that territory, or

(iii) it is for some other reason treated under that law as
resident in that territory for the purposes of that tax.

(4) 30For the purposes of this Chapter a company is a “relevant
multinational company” if—

(a) it is within the charge to a tax, under the law of a territory
(“the PE jurisdiction”) in which it is not resident for tax
purposes, because it carries on business in that territory
35through a permanent establishment in that territory, and

(b) either—

(i) the PE jurisdiction is the United Kingdom, or

(ii) the territory in which the company is resident for tax
purposes (“the parent jurisdiction”) is the United
40Kingdom.

(5) Condition B is that there is an amount (“the dual territory double
deduction amount”) that, disregarding this Chapter and any
equivalent provision under the law of a territory outside the United
Kingdom, it is reasonable to suppose could, by reason of the