Finance Bill (HC Bill 47)

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company being a dual resident company or a relevant multinational
company—

(a) be deducted from the company’s income for an accounting
period (“the deduction period”) for corporation tax purposes,
5and

(b) also be deducted from the company’s income for a taxable
period (“the foreign deduction period”) for the purposes of a
tax charged under the law of a territory outside the United
Kingdom.

(6) 10Sections 259JB (cases where a company is dual resident or the United
Kingdom is the parent jurisdiction) and 259JC (cases where a
company is a relevant multinational company, the United Kingdom
is the PE jurisdiction and the amount is not fully counteracted)
provide for the counteraction of the dual territory double deduction
15amount.

Counteraction
259JB Counteraction where mismatch arises because of a dual resident
company or the UK is the parent jurisdiction

(1) This section applies where—

(a) 20the dual territory double deduction amount arises as a result
of the company being a dual resident company, or

(b) the dual territory double deduction amount arises as a result
of the company being a relevant multinational company and
the United Kingdom is the parent jurisdiction.

(2) 25For corporation tax purposes, the dual territory double deduction
amount may not be deducted from the company’s income for the
deduction period unless it is deducted from dual inclusion income of
the company for that period.

(3) So much of the dual territory double deduction amount (if any) as,
30by virtue of subsection (2), cannot be deducted from the company’s
income for the deduction period—

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

(b) for corporation tax purposes, may be deducted from dual
35inclusion income of the company for any such period (and
not from 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 company has ceased to be
a dual resident company or relevant multinational company, any of
40the dual territory double deduction amount that has not been
deducted from dual inclusion income in accordance with subsection
(2) or (3) (“the stranded deduction”) may be deducted at step 2 in
section 4(2) of CTA 2010 in calculating the company’s taxable total
profits of the accounting period in which it ceased to be a dual
45resident company or relevant multinational company.

(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
in calculating the company’s taxable total profits of the accounting

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period in which the company ceased to be a dual resident company
or relevant multinational company—

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

(b) 5may be so deducted for any such period, so far as it cannot be
deducted under this paragraph for an earlier period.

(6) Subsection (7) applies if it is reasonable to suppose that all or part of
the dual territory double deduction amount is deducted (“the
illegitimate overseas deduction”), under the law of a territory
10outside the United Kingdom, from income of any person, for a
taxable period, that is not dual inclusion income of the company.

(7) For the purposes of determining how much of the dual territory
double deduction amount may be deducted (if any) for the
accounting period of the company in which the taxable period
15mentioned in subsection (6) ends, and any subsequent accounting
periods of the company, 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 company.

(8) In this section “dual inclusion income” means an amount that is
20both—

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

(b) ordinary income of the company for the purposes of a tax
charged under the law of a territory outside the United
25Kingdom.

259JC Counteraction where mismatch arises because of relevant
multinational and is not counteracted by section 259JB

(1) This section applies where—

(a) the dual territory double deduction amount arises as a result
30of the company being a relevant multinational company,

(b) the United Kingdom is the PE jurisdiction, and

(c) it is reasonable to suppose that—

(i) no provision of the law of the parent jurisdiction that
is equivalent to section 259JB applies, or

(ii) 35such a provision does apply, but the dual territory
double deduction amount is not wholly prevented,
under that provision, from being deducted from the
company’s income for the foreign deduction period
other than dual inclusion income.

(2) 40In this section “the restricted deduction” means—

(a) in a case where subsection (1)(c)(i) applies, the dual territory
double deduction amount, or

(b) in case where subsection (1)(c)(ii) applies, the dual territory
double deduction amount so far as it is reasonable to suppose
45that it is not prevented, under a provision of the law of the
parent jurisdiction that is equivalent to section 259JB, from
being deducted from income of the company for the foreign
deduction period other than dual inclusion income.

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

(4) 5So much of the restricted deduction (if any) as, by virtue of
subsection (3), cannot be deducted from the company’s income for
the deduction period—

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

(b) 10for corporation tax purposes, may be deducted from dual
inclusion income of the company for any such period (and
not from any other income), so far as it cannot be deducted
under this paragraph for an earlier period.

(5) If the Commissioners are satisfied that the company has ceased to be
15a relevant multinational company, any of the restricted deduction
that has not been deducted from dual inclusion income in
accordance with subsection (3) or (4) (“the stranded deduction”) may
be deducted at step 2 in section 4(2) of CTA 2010 in calculating the
company’s taxable total profits of the accounting period in which it
20ceased to be a relevant multinational company.

(6) So much of the stranded deduction (if any) as cannot be deducted, in
accordance with subsection (5), at step 2 in section 4(2) of CTA 2010
in calculating the company’s taxable total profits of the accounting
period in which the company ceased to be a relevant multinational
25company—

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

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

(7) 30Subsection (8) applies if it is reasonable to suppose that all or part of
the dual territory 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.

(8) 35For the purposes of determining how much of the dual territory
double deduction amount may be deducted (if any) for the
accounting period of the company in which the taxable period
mentioned in subsection (7) ends, and any subsequent accounting
periods of the company, an amount of it equal to the illegitimate
40overseas deduction is to be taken to have already been deducted for
a previous accounting period of the company.

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

(a) ordinary income of the company for corporation tax
45purposes, and

(b) ordinary income of the company for the purposes of a tax
charged under the law of a territory outside the United
Kingdom.

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CHAPTER 11 Imported mismatches
Introduction
259K Overview of Chapter

(1) This Chapter contains provision denying deductions in connection
5with payments or quasi-payments that are made under, or in
connection with, imported mismatch arrangements where the payer
is within the charge to corporation tax for the payment period.

(2) Section 259KA contains the conditions that must be met for this
Chapter to apply and defines “imported mismatch payment” and
10“imported mismatch arrangement”.

(3) Section 259KB contains provision for denying some or all of a
relevant deduction in relation to an imported mismatch payment.

(4) See also section 259BB for the meaning of “payment”, “quasi-
payment”, “relevant deduction”, “payment period” and “payer”.

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

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

(2) Condition A is that a payment or quasi-payment (“the imported
mismatch payment”) is made under, or in connection with, an
20arrangement (“the imported mismatch arrangement”).

(3) Condition B is that, in relation to the imported mismatch payment,
the payer (“P”) is within the charge to corporation tax for the
payment period.

(4) Condition C is that the imported mismatch arrangement is one of a
25series of arrangements.

(5) A “series of arrangements” means a number of arrangements that are
each entered into (whether or not one after the other) in pursuance
of, or in relation to, another arrangement (“the over-arching
arrangement”).

(6) 30Condition D is that—

(a) under an arrangement in the series other than the imported
mismatch arrangement, there is a payment or quasi-payment
(“the mismatch payment”) in relation to which it is
reasonable to suppose that there is or will be—

(i) 35a hybrid or otherwise impermissible deduction/non-
inclusion mismatch (see section 259CB),

(ii) a hybrid transfer deduction/non-inclusion mismatch
(see section 259DC),

(iii) a hybrid payer deduction/non-inclusion mismatch
40(see section 259EB),

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(iv) a hybrid payee deduction/non-inclusion mismatch
(see section 259GB),

(v) a multinational payee deduction/non-inclusion
mismatch (see section 259HB),

(vi) 5a hybrid entity double deduction amount (see section
259IA(4)), or

(vii) a dual territory double deduction (see subsection (7)),
or

(b) as a consequence of an arrangement in the series other than
10the imported mismatch arrangement, there is or will be an
excessive PE deduction (see section 259FA(8)),

and in this Chapter “the relevant mismatch” means the mismatch,
amount or deduction concerned.

(7) In subsection (6)(a)(vii) “a dual territory double deduction” means
15an amount that can be deducted by a company both—

(a) from income for the purposes of a tax charged under the law
of one territory, and

(b) from income for the purposes of a tax charged under the law
of another territory.

(8) 20Condition E is that it is reasonable to suppose that no provision of
Chapters 3 to 10 nor any equivalent provision under the law of a
territory outside the United Kingdom applies, or will apply, in
relation to—

(a) where paragraph (a) of subsection (6) applies, the tax
25treatment of any person in respect of the mismatch payment,
or

(b) where paragraph (b) of that subsection applies, the tax
treatment of the company in relation to which the excessive
PE deduction arises.

(9) 30Condition F is that a provision of Chapters 3 to 10 or an equivalent
provision under the law of a territory outside the United Kingdom
would apply in relation to the tax treatment of P—

(a) where paragraph (a) of subsection (6) applies, if—

(i) P were the payer in relation to the mismatch payment,

(ii) 35P were a payee in relation to the mismatch payment,
or

(iii) where the relevant mismatch is a hybrid payee
deduction/non-inclusion mismatch or a hybrid entity
double deduction amount, P were an investor in the
40hybrid entity concerned, or

(b) where the relevant mismatch is an excessive PE deduction, if
the deduction were to arise in relation to P.

(10) Condition G is that—

(a) subsection (6)(a) applies and P is in the same control group
45(see section 259NA) as the payer, or a payee, in relation to the
mismatch payment, at any time in the period—

(i) beginning with the day the over-arching arrangement
is made, and

(ii) ending with the last day of the payment period in
50relation to the imported mismatch payment,

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(b) subsection (6)(b) applies and P is in the same control group as
the company in relation to whom the excessive PE deduction
arises at any time in that period, or

(c) the imported mismatch arrangement, or the over-arching
5arrangement, is a structured arrangement.

(11) The imported mismatch arrangement, or the over-arching
arrangement, is a “structured arrangement” if it is reasonable to
suppose that—

(a) the arrangement concerned is designed to secure the relevant
10mismatch, or

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

(12) 15An arrangement may be designed to secure the relevant mismatch
despite also being designed to secure any commercial or other
objective.

(13) Section 259KB contains provision for denying all or part of the
relevant deduction in relation to the imported mismatch payment by
20reference to the relevant mismatch.

Counteraction
259KB Denial of the relevant deduction in relation to the imported mismatch
payment

(1) If, in addition to the imported mismatch payment, there are, or will
25be, one or more relevant payments in relation to the relevant
mismatch, subsection (3) applies.

(2) Otherwise, for corporation tax purposes, in relation to the imported
mismatch payment, the relevant deduction that may be deducted
from P’s income for the payment period is to be reduced by the
30amount of the relevant mismatch.

(3) For corporation tax purposes, where this subsection applies, in
relation to the imported mismatch payment, the relevant deduction
that may be deducted from P’s income for the payment period is to
be reduced by P’s share of the relevant mismatch.

(4) 35P’s share of the relevant mismatch is to be determined by
apportioning the relevant mismatch between P and every payer in
relation to a relevant payment on a just and reasonable basis—

(a) where subsection (6)(a) applies, having regard (in particular)
to the extent to which the imported mismatch payment and
40each relevant payment funds (directly or indirectly) the
mismatch payment, or

(b) where the relevant mismatch is an excessive PE deduction,
having regard (in particular) to—

(i) if the transfer of money or money’s worth mentioned
45in section 259FA(4)(b) is actually made, the extent to
which the imported mismatch payment and each

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relevant payment funds (directly or indirectly) the
transfer, or

(ii) if the transfer of money or money’s worth mentioned
in section 259FA(4)(b) is (in substance) treated as
5being made, the extent to which the imported
mismatch payment and each relevant payment
would have funded (directly or indirectly) the
transfer if it had actually been made.

(5) For the purposes of subsection (4)(a) and (b)(i), the imported
10mismatch payment is to be taken to fund the mismatch payment or
transfer to the extent that the mismatch payment or transfer cannot
be shown instead to be funded (directly or indirectly) by one or more
relevant payments.

(6) For the purposes of subsection (4)(b)(ii), it is to be assumed that the
15imported mismatch payment would have funded the transfer if it
had actually been made to the extent that it cannot be shown by P
that, if it had been made, the transfer would have instead been
funded (directly or indirectly) by one or more relevant payments.

(7) For the purposes of this section, a payment or quasi-payment, other
20than the imported mismatch payment or any mismatch payment, is
a “relevant payment” in relation to the relevant mismatch if it is
made under an arrangement in the series of arrangements
mentioned in section 259KA(4) and—

(a) where subsection (6)(a) applies, it funds (directly or
25indirectly) the mismatch payment,

(b) where the relevant mismatch is an excessive PE deduction
and the transfer of money or money’s worth mentioned in
section 259FA(4)(b) is actually made, it funds (directly or
indirectly) that transfer, or

(c) 30where the relevant mismatch is an excessive PE deduction
and the transfer of money or money’s worth mentioned in
section 259FA(4)(b) is (in substance) treated as being made, it
would have funded (directly or indirectly) that transfer had
that transfer actually been made.

(8) 35In proceedings before a court or tribunal in connection with this
section—

(a) in relation to subsection (1), it is for P to show that, in
addition to the imported mismatch payment, there are one or
more relevant payments in relation to the relevant mismatch,
40and

(b) in relation to subsection (5), it is for P to show that the
mismatch payment or transfer is funded (directly or
indirectly) by one or more relevant payments instead of by
the imported mismatch payment.

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CHAPTER 12 Adjustments in light of subsequent events etc
259L Adjustments where suppositions cease to be reasonable

(1) Where—

(a) a reasonable supposition is made for the purposes of any
5provision of this Part, and

(b) the supposition turns out to be mistaken or otherwise ceases
to be reasonable,

such consequential adjustments as are just and reasonable may be
made.

(2) 10The adjustments may be made (whether or not by an officer of
Revenue and Customs) by way of an assessment, the modification of
an assessment, amendment or disallowance of a claim, or otherwise.

(3) But the power to make adjustments by virtue of this section is subject
to any time limit imposed by or under any enactment other than this
15Part.

(4) No adjustment is to be made under this section on the basis that an
amount of ordinary income arises, as a result of a payment or quasi-
payment, to a payee after that payee’s last permitted taxable period
in relation to the payment or quasi-payment (see section 259LA,
20which makes provision about certain such cases).

259LA Deduction from taxable total profits where an amount of ordinary
income arises late

(1) This section applies where—

(a) a relevant deduction in respect of a payment or quasi-
25payment is reduced by section 259CC, 259DE, 259GC or
259HC or by more than one of those sections,

(b) no other provision of this Part, or any equivalent provision of
the law of a territory outside the United Kingdom, applies or
will apply to the tax treatment of any person in respect of the
30payment or quasi-payment,

(c) the section or sections had effect because it was reasonable to
suppose that the relevant deduction exceeded, or would
exceed, the sum of the amounts of ordinary income arising,
by reason of the payment or quasi-payment, to each payee for
35a permitted taxable period, and

(d) an amount of ordinary income (“the late income”) arises—

(i) by reason of the payment or quasi-payment, but

(ii) not as a consequence of any provision of this Part or
any equivalent provision of the law of a territory
40outside the United Kingdom,

to a payee for a taxable period (“the late period”) that is not a
permitted taxable period.

(2) An amount equal to the late income may be deducted at step 2 in
section 4(2) of CTA 2010 in calculating the payer’s taxable total
45profits of the accounting period in which the late period ends.

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(3) So much of that amount (if any) as cannot be deducted, in accordance
with subsection (2), at step 2 in section 4(2) of CTA 2010 in calculating
the taxable total profits of the accounting period in which the late
period ends—

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

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

(4) But the total amount deducted from taxable total profits under this
10section, in relation to a payment or quasi-payment, may not exceed
the total amount by which the relevant deduction is reduced as
mentioned in (1)(a).

(5) In this section “permitted taxable period”—

(a) where the relevant deduction was reduced under section
15259CC, has the meaning given by section 259CB(7),

(b) where the relevant deduction was reduced under section
259DE, has the meaning given by section 259DC(9),

(c) where the relevant deduction was reduced under section
259GC, has the meaning given by section 259GB(5),

(d) 20where the relevant deduction was reduced under section
259HC, has the meaning given by section 259HB(4), or

(e) where the relevant deduction was reduced under two or
more of the sections mentioned in the preceding paragraphs
of this subsection, includes any taxable period that is a
25permitted period under a provision mentioned in the
paragraphs concerned.

CHAPTER 13 Anti-avoidance
259M Countering the effect of avoidance arrangements

(1) This section applies where—

(a) 30relevant avoidance arrangements exist,

(b) as a result of those arrangements, any person (whether party
to the arrangements or not) would, apart from this section,
obtain a relevant tax advantage, and

(c) that person is—

(i) 35within the charge to corporation tax at the time the
person would obtain the relevant tax advantage, or

(ii) would be within the charge to corporation tax at that
time but for the relevant avoidance arrangements.

(2) The relevant tax advantage is to be counteracted by making such
40adjustments to the person’s treatment for corporation tax purposes
as are just and reasonable.

(3) Any adjustments required to be made under this section (whether or
not by an officer of Revenue and Customs) may be made by way of
an assessment, the modification of an assessment, amendment or
45disallowance of a claim, or otherwise.

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(4) A person obtains a “relevant tax advantage” if—

(a) the person avoids, to any extent, any provision of this Part, or
any equivalent provision of the law of a territory outside the
United Kingdom, restricting whether or how that person
5may make a deduction from income for the purposes of
calculating taxable profits, or

(b) the person avoids, to any extent, an amount being treated as
income of that person under any provision of this Part or any
equivalent provision of the law of a territory outside the
10United Kingdom.

(5) “Relevant avoidance arrangements” means arrangements the main
purpose, or one of the main purposes, of which is to enable any
person to obtain a relevant tax advantage.

(6) But arrangements are not “relevant avoidance arrangements” if the
15obtaining of the relevant tax advantage can reasonably be regarded
as consistent with the principles on which the provisions of this Part,
or the equivalent provisions under the law of a territory outside the
United Kingdom, that are relevant to the arrangements are based
(whether express or implied) and the policy objectives of those
20provisions.

(7) For the purposes of determining the principles and policy objectives
mentioned in subsection (6), regard may, where appropriate, be had
to the Final Report on Neutralising the Effects of Hybrid Mismatch
Arrangements published by the Organisation for Economic
25Cooperation and Development (“OECD”) on 5 October 2015 or any
replacement or supplementary publication.

(8) In subsection (7) “replacement or supplementary publication” means
any document that is approved and published by the OECD in place
of, or to update or supplement, the report mentioned in that
30subsection (or any replacement of, or supplement to, it).

CHAPTER 14 Interpretation
Financial instruments
259N Meaning of “financial instrument”

(1) A “financial instrument” means—

(a) 35an arrangement profits or deficits arising from which would,
on the assumption that the person to whom they arise is
within the charge to corporation tax, fall to be brought into
account for corporation tax purposes in accordance with Part
5 or 6 of CTA 2009 (loan relationships and relationships
40treated as loan relationships),

(b) a contract profits or losses arising from which would, on the
assumption that the person to whom they arise is within the
charge to corporation tax, fall to be brought into account for
corporation tax purposes in accordance with Part 7 of CTA
452009 (derivative contracts),