Session 2017-19
Finance (No.2) Bill
Further written evidence submitted by the Institute of Chartered Accountants of England and Wales (ICAEW) (FB05)
Hybrid and other mismatches
Submission by ICAEW on 20 December 2017 to House of Commons Public Bill Committee in response to invitation dated 14 December 2017 to "have your say"
WHO WE ARE
1. Please see Appendix 1.
PROPOSED ADDITION TO PARAGRAPH 14 SCHEDULE 7.
The explanatory notes explain the purpose of paragraph 14 as follows:
Paragraph 14 inserts new section 259ID, which defines "section 259ID income" by reference to conditions A to D.
· Condition A requires an investor to make a payment to the hybrid entity, and that the payment does not give rise to a tax deduction for the investor.
· Condition B is that the payment gives rise to (taxable) ordinary income for the hybrid entity.
· Condition C is that the payment is a direct consequence of a payment to the investor from an unrelated third party.
· Condition D is that the payment from that third party gives rise to (taxable) ordinary income for the investor.
The amount of section 259ID income is defined as the lesser of the payment made by the investor (condition A) and the payment received by the investor (condition C)
OUR RECOMMENDATION
We recommend that conditions C and D should be extended to include, alternatively, where the payment at conditions A and B (a payment by the investor which is ordinary income of the hybrid entity) is directly related to a payment made by the hybrid entity to an unrelated person.
AN EXAMPLE SETTING OUT WHY THE AMENDMENT IS NECESSARY
Consider a "checked" UK company (the hybrid entity) owned by a US investor (the investor) where the UK company has third party cost of 100 recharged to the US at 110.
In the absence of the proposed amendment, the UK company has income of 110 and a disallowed expense of 100 (i.e. taxable profit of 110)..
The UK company expense of 100 is disallowed (under Chapter 9 Taxation (International And other Provisions) Act 2010in which section 591D will be inserted) because 100 is a double deduction (UK and US) with no "dual inclusion income". The only income of the UK company is the 110 which is a disregarded expense in the US.
FURTHER INFORMATION
As part of our Royal Charter, we have a duty to inform policy in the public interest.
ICAEW TAX FACULTY – WHO WE ARE
ICAEW Tax Faculty is internationally recognised as a source of expertise and is a leading authority on taxation. It is responsible for making submissions to tax authorities on behalf of ICAEW and does this with support from over 130 volunteers, many of whom are well-known names in the tax world.
ICAEW is a world-leading professional accountancy body. We operate under a Royal Charter, working in the public interest. ICAEW’s regulation of its members, in particular its responsibilities in respect of auditors, is overseen by the UK Financial Reporting Council. We provide leadership and practical support to over 147,000 member chartered accountants in more than 160 countries, working with governments, regulators and industry in order to ensure that the highest standards are maintained.
ICAEW members operate across a wide range of areas in business, practice and the public sector. They provide financial expertise and guidance based on the highest professional, technical and ethical standards. They are trained to provide clarity and apply rigour, and so help create long-term sustainable economic value ICAEW is a world-leading professional accountancy body.
December 2017