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Hybrid mismatches
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31. The Principal Act is amended by inserting the following Part after Part 35B:
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“PART 35C
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Implementation of Council Directive (EU) 2016/1164 of 12 July 2016 as regards hybrid mismatches
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Chapter 1
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Interpretation and general (Part 35C)
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Interpretation (Part 35C)
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835Z. (1) In this Part—
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‘arrangement’, other than in the definition of ‘entity’ and ‘hybrid entity’, means—
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(a) any transaction, action, course of action, course of conduct, scheme, plan or proposal,
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(b) any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable or intended to be enforceable by legal proceedings, and
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(c) any series of or combination of the circumstances referred to in paragraphs (a) and (b),
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whether entered into or arranged by one or two or more enterprises—
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(i) whether acting in concert or not,
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(ii) whether or not entered into or arranged wholly or partly outside the State, or
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(iii) whether or not entered into or arranged as part of a larger arrangement or in conjunction with any other arrangement or arrangements,
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but does not include an arrangement referred to in section 826;
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‘associated enterprise’ shall be construed in accordance with section 835AA;
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‘chargeable period’ has the same meaning as it has in Part 41A;
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‘controlled foreign company charge’ has the same meaning as it has in Part 35B;
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‘deduction’ in respect of a payment, or part thereof, refers to an amount—
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(a) which may be taken into account as an expenditure or expense,
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(b) in respect of which an allowance for capital expenditure may be made, or
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(c) which may otherwise be deducted, allowed or relieved,
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in computing the profits or gains on which tax falls finally to be borne for the purposes of domestic tax or foreign tax;
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‘deemed payment’ means—
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(a) in relation to a transaction between the head office of an entity and a permanent establishment of that entity, the allocation of payments, profits or gains from the head office to the permanent establishment, and
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(b) in relation to a transaction between two or more permanent establishments of an entity, the allocation of payments, profits or gains from one permanent establishment to another;
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‘Directive (EU) 2016/1164’ means Council Directive (EU) 2016/1164 of 12 July 20165
laying down rules against tax avoidance practices that directly affect the functioning of the internal market, as amended by Directive (EU) 2017/952;
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‘Directive (EU) 2017/952’ means Council Directive (EU) 2017/952 of 29 May 20176
amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries;
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‘domestic tax’ means income tax, corporation tax (including a controlled foreign company charge) or capital gains tax;
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‘double deduction’ means a deduction in respect of the same payment for the purposes of domestic tax and foreign tax;
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‘double deduction mismatch outcome’ shall be construed in accordance with section 835AD;
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‘dual inclusion income’, subject to section 835AB, means any amount which is included in both territories where the mismatch outcome has arisen;
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‘enterprise’ means an entity or an individual;
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‘entity’ means—
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(a) a person (other than an individual),
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(b) an undertaking (other than an individual), or
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(c) an agreement, trust or other arrangement,
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that has legal personality under the laws of the territory in which it is established;
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‘financial instrument deduction without inclusion mismatch outcome’ shall be construed in accordance with section 835AJ;
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‘foreign company charge’ has the same meaning as it has in Part 35B;
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‘foreign tax’ means a tax chargeable on profits or gains, under the laws of a territory other than the State, that is similar to a domestic tax, but not including a withholding tax to the extent that such a tax is refundable where it has been levied;
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‘hybrid entity’ means—
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(a) a person (other than an individual),
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(b) an undertaking (other than an individual), or
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(c) an agreement, trust or other arrangement,
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some or all of the profits or gains of which are treated, or would be so treated but for an insufficiency of profits or gains, under the tax law of one territory as arising or accruing to the entity on its own account, but, for the purposes of tax charged under the tax law of another territory, some or all of the profits or gains of which are treated, or would be so treated but for an insufficiency of profits or gains, as arising or accruing to another enterprise (in this Part referred to as ‘the participator’);
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‘included’ in respect of a payment, means an amount of profits or gains arising from the payment—
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(a) that is treated as arising or accruing to the payee where the payee—
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(i) is chargeable to domestic tax or foreign tax, as the case may be, but not including any amount which is only so chargeable when it is remitted into the payee territory,
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(ii) is a pension fund, government body or other entity that, under the laws of the territory in which it is established, is exempt from tax which generally applies to profits or gains in that territory,
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(iii) is established in a territory, or part of a territory, that does not impose a foreign tax, or
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(iv) is established in a territory that does not impose a tax that generally applies to profits or gains derived from payments receivable in that territory by enterprises from sources outside that territory,
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or
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(b) that is subject to a controlled foreign company charge or a foreign company charge;
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‘investor’ means an enterprise or the permanent establishment of an entity, against whose profits or gains a deduction is made in respect of a payment in the investor territory;
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‘investor territory’, in relation to a payment, means a territory, other than the payer territory, where the payment is deductible;
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‘mismatch outcome’ means any or all of the following, as the context requires:
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(a) a double deduction mismatch outcome;
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(b) a permanent establishment deduction without inclusion mismatch outcome;
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(c) a financial instrument deduction without inclusion mismatch outcome;
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(d) a payment to a hybrid entity deduction without inclusion mismatch outcome;
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(e) a payment by a hybrid entity deduction without inclusion mismatch outcome;
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‘payee’, in respect of a payment, means an enterprise or permanent establishment of an entity—
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(a) which receives that payment or is treated as receiving that payment under the laws of any territory, other than where that payment is received or treated as being received, as the case may be, in a fiduciary or representative capacity,
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(b) which is a participator,
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(c) to the benefit of which the payment is treated as arising or accruing under the laws of any territory, or
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(d) on which a controlled foreign company charge or foreign company charge is made by reference to that payment;
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‘payee territory’ means a territory in which a payee is established;
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‘payer’ means—
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(a) an enterprise, or
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(b) the permanent establishment of an entity,
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against whose profits or gains a deduction is made in respect of a payment in a payer territory;
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‘payer territory’ means—
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(a) in a case in which the payment concerned is made by a hybrid entity or a permanent establishment, the territory in which the hybrid entity or permanent establishment, as the case may be, is established, and
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(b) in all other cases, the territory where the payment in respect of which the deduction concerned is incurred, sourced or made;
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‘payment’ means—
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(a) a transfer of money or money’s worth, or
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(b) a deemed payment;
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‘payment by a hybrid entity deduction without inclusion mismatch outcome’ shall be construed in accordance with section 835AM;
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‘payment to a hybrid entity deduction without inclusion mismatch outcome’ shall be construed in accordance with section 835AL;
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‘permanent establishment deduction without inclusion mismatch outcome’ shall be construed in accordance with section 835AG;
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‘structured arrangement’ means an arrangement involving a transaction, or series of transactions, under which a mismatch outcome arises, where—
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(a) the mismatch outcome is priced into the terms of the arrangement, or
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(b) the arrangement was designed to give rise to a mismatch outcome;
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‘tax period’ means—
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(a) in respect of a charge to domestic tax, a chargeable period,
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(b) in respect of a charge to foreign tax, a period equivalent to a chargeable period, or
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(c) where the entity concerned is not charged to tax, the period for which financial statements are prepared.
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(2) A reference to a provision of the law of a territory, other than the State, similar to this Part, or a provision of this Part, is a reference to a provision enacted to—
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(a) give effect to Directive (EU) 2016/1164,
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(b) implement the Final Report on Neutralising the Effects of Hybrid Mismatch Arrangements published by the Organisation for Economic Co-operation and Development on 5 October 2015,
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(c) implement the Final Report on Neutralising the Effects of Branch Mismatch Arrangements published by the Organisation for Economic Co-operation and Development on 27 July 2017, or
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(d) otherwise neutralise a mismatch outcome,
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where that provision has a similar effect to this Part, or a provision of this Part, as the case may be.
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(3) A word or expression which is used in this Part and is also used in Directive (EU) 2016/1164 has, unless the context otherwise requires, the same meaning in this Part as it has in Directive (EU) 2016/1164.
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(4) A reference in this Part—
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(a) to the territory in which an entity is established, shall—
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(i) in a case in which the entity is registered, incorporated or created under the laws of one territory, but has its place of effective management in another territory, be construed as a reference to the territory in which the entity has its place of effective management, and
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(ii) in all other cases, be construed as a reference to the territory in which the entity is registered, incorporated or created,
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and
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(b) to the territory in which a permanent establishment is established, shall be construed as a reference to the territory in which the permanent establishment carries on a business.
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Associated enterprises
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835AA. (1) In this section—
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‘non-consolidating entity’ means an entity which is valued, or would be so valued if consolidated financial statements were prepared under international accounting standards, in consolidated financial statements—
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(a) using fair value accounting (within the meaning of international accounting standards), or
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(b) on the basis that it is an asset held for sale or held for distribution (within the meaning of international accounting standards);
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‘significant influence in the management of’, in relation to an entity, means the ability to participate, on the board of directors or equivalent governing body of the entity, in the financial and operating policy decisions of that entity, including where that power does not extend to control or joint control of that entity.
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(2) In this Part, two enterprises shall be ‘associated enterprises’ in respect of each other—
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(a) if one enterprise, directly or indirectly, possesses or is beneficially entitled to—
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(i) where the other enterprise is an entity having share capital, not less than 25 per cent of the issued share capital of the other enterprise, or
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(ii) where the other enterprise is an entity not having share capital, an interest of not less than 25 per cent of the ownership rights in the other enterprise,
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(b) if one enterprise, directly or indirectly, is entitled to exercise not less than 25 per cent of the voting power in the other enterprise, where that other enterprise is an entity,
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(c) if one enterprise (in this paragraph referred to as the ‘first-mentioned enterprise’), directly or indirectly, holds such rights as would—
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(i) where the other enterprise is a company, if the whole of the profits of that other enterprise were distributed, entitle the first-mentioned enterprise, directly or indirectly, to receive 25 per cent or more of the profits so distributed, or
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(ii) where the other enterprise is an entity other than a company, if the share of the profits of that other enterprise to which the first-mentioned enterprise is entitled, directly or indirectly, is 25 per cent or more,
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(d) where there is another enterprise in respect of which the two enterprises are, in accordance with paragraph (a), (b) or (c), an associated enterprise,
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(e) where both enterprises are entities that are—
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(i) not non-consolidating entities, and
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(ii) included in the same consolidated financial statements prepared under—
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(I) international accounting standards, or
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(II) Irish generally accepted accounting practice,
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(f) where both enterprises—
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(i) are entities that are—
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(I) not included in consolidated financial statements, or
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(II) included in consolidated financial statements prepared other than under an accounting practice referred to in paragraph (e)(ii),
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(ii) are not non-consolidating entities, and
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(iii) would, if consolidated financial statements were prepared under the accounting practice referred to in paragraph (e)(ii)(I), be included in the same consolidated financial statements,
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or
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(g) where one enterprise has significant influence in the management of the other enterprise.
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(3) Where an enterprise (in this subsection referred to as the ‘first-mentioned enterprise’) acts together with another enterprise (in this subsection referred to as the ‘second-mentioned enterprise’) with respect to voting rights, share ownership rights or similar ownership rights, the first-mentioned enterprise shall be treated, for the purposes of paragraphs (a), (b) and (c) of subsection (2), as possessing, holding or being entitled to, as the case may be, the rights of the second-mentioned enterprise.
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(4) For the purposes of paragraphs (a), (b) and (c) of subsection (2), there shall be attributed to an enterprise any rights or powers of a nominee for such enterprise, that is, any rights or powers which another enterprise possesses on such enterprise’s behalf or may be required to exercise on such enterprise’s direction or behalf.
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(5) For the purposes of—
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(a) Chapter 2,
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(b) Chapter 3,
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(c) Chapter 8, and
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(d) the application of this Part to hybrid entities,
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a reference, in subsection (2), to ‘25 per cent’ shall be construed as a reference to ‘50 per cent’.
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(6) References in this Part to a transaction between associated enterprises shall include a reference to a transaction in respect of which the enterprises concerned are or were associated enterprises at the time—
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(a) the transaction was entered into,
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(b) the transaction was formed, or
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(c) a payment arises under the transaction.
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Worldwide system of taxation
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835AB. (1)Subject to subsection (3), this section applies where an entity is taxable in an investor or payee territory (in this section referred to as the ‘first-mentioned territory’) such that payments (in this section referred to as ‘disregarded payments’) between—
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(a) the head office of the entity and a permanent establishment of that entity,
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(b) two or more permanent establishments of the entity,
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(c) where the entity is a participator in a hybrid entity, the entity and the hybrid entity, or
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(d) where the entity is a participator in two or more hybrid entities, two or more such hybrid entities,
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are disregarded when computing the taxable profits of the entity in the first-mentioned territory under a provision of the law of that territory similar in effect to section 26(1).
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(2) Where—
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(a) this section applies, and
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(b) a payment is deductible in a case in which—
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(i) the amount deducted would be deducted against dual inclusion income, or
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(ii) the deduction would not result in a deduction without inclusion mismatch outcome,
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but for the fact that the amount against which the payment is deductible in the payer territory is a disregarded payment in the first-mentioned territory,
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the disregarded payment shall be treated as included in the first-mentioned territory.
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(3) This section shall not apply where—
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(a) the disregarded payments are between—
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(i) where the entity referred to in subsection (1) is a participator in a hybrid entity, the entity and the hybrid entity, or
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(ii) where the entity referred to in subsection (1) is a participator in two or more hybrid entities, two or more such hybrid entities,
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and
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(b) there is, in substance, a hybrid mismatch (either within the meaning of Directive (EU) 2016/1164 or within the meaning of that term when construed in a manner consistent with its use in the reports referred to in section 835Z(2)).
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Chapter 2
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Double deduction
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Application of Chapter 2
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835AC. This Chapter shall apply—
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(a) to a company within the charge to corporation tax, and
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(b) to a transaction giving rise to a mismatch outcome between—
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(i) entities that are associated enterprises,
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(ii) the head office of an entity and a permanent establishment of that entity, or
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(iii) two or more permanent establishments of an entity.
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Double deduction mismatch outcome
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835AD.(1) A double deduction mismatch outcome shall arise where it would be reasonable to consider that there is, or but for this section there would be, a double deduction arising in respect of a payment, to the extent the payment is not, or would not be, deductible against dual inclusion income.
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(2) A double deduction mismatch outcome shall be neutralised as follows:
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(a) where the State is the investor territory, notwithstanding any other provision of the Tax Acts or the Capital Gains Tax Acts, the investor shall be denied a deduction for the purposes of domestic tax for the amount of the payment which gives rise to the double deduction mismatch outcome;
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(b) where the State is the payer territory and a deduction has not been denied in the investor territory through the operation of a provision similar to paragraph (a), notwithstanding any other provision of the Tax Acts or the Capital Gains Tax Acts, the payer shall be denied a deduction for the purposes of domestic tax for the amount of the payment which gives rise to the double deduction mismatch outcome.
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Chapter 3
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Permanent establishments
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Application of Chapter 3
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835AE. This Chapter shall apply—
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(a) to an entity which is within the charge to a foreign tax or to corporation tax, and
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(b) to a transaction that gives rise to a mismatch outcome between—
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(i) entities that are associated enterprises,
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(ii) the head office of an entity and a permanent establishment of that entity, or
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(iii) two or more permanent establishments of an entity.
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Disregarded permanent establishment
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835AF. (1) In this Chapter, ‘disregarded permanent establishment’ means a presence in a territory (in this subsection referred to as the ‘first-mentioned territory’)—
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(a) which is treated for the purposes of the tax law of the territory in which an entity has its head office (in this subsection referred to as the ‘second-mentioned territory’) as a permanent establishment of that entity,
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(b) some or all of the profits or gains of which are not included for the purposes of domestic tax in the second-mentioned territory, and
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(c) in respect of the profits and gains of which—
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(i) where the first-mentioned territory is the State, the entity is not charged to tax under section 25, and
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(ii) where the first-mentioned territory is not the State, the entity is not charged to foreign tax.
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(2) In this section:
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‘domestic tax’ means a tax chargeable on profits or gains, under the laws of a territory in which the head office of an entity is established, that is similar to income tax, corporation tax (including a charge under Part 35B) or capital gains tax;
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‘foreign tax’ means a tax chargeable on profits or gains, under the laws of a territory in which the permanent establishment of the entity is established, that is similar to income tax, corporation tax (including a charge under Part 35B) or capital gains tax.
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Permanent establishment deduction without inclusion mismatch outcome
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835AG.(1) A permanent establishment deduction without inclusion mismatch outcome shall arise in respect of a payment where it would be reasonable to consider that—
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(a) there is, or but for this section would be, a deduction in the payer territory, in a case in which a corresponding amount has not been included in the payee territory, and
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(b) the satisfaction of the condition described in paragraph (a) is attributable to—
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(i) the payment being made to a disregarded permanent establishment,
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(ii) differences in the allocation of payments between the head office of an entity and a permanent establishment of that entity, or between two or more permanent establishments of an entity, or
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(iii) where the payment is between the head office of an entity and a permanent establishment of that entity or between two or more permanent establishments of an entity, the payment being disregarded under the laws of the payee territory.
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(2) A permanent establishment deduction without inclusion mismatch outcome shall not arise by virtue of the circumstance described in subsection (1)(b)(iii) to the extent the payment is, or would be, deductible against dual inclusion income.
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(3) A permanent establishment deduction without inclusion mismatch outcome shall be neutralised as follows:
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(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;
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(b) where—
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(i) the State is the payee territory,
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(ii) the mismatch outcome arises by virtue of paragraph (b)(i) of subsection (1),
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(iii) the disregarded permanent establishment is a permanent establishment within the meaning of Article 5 of the Model Tax Convention on Income and Capital, published by the Organisation for Economic Co-operation and Development, as it read on 21 November 2017, and
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(iv) a deduction has not been denied in the payer territory through the operation of a provision similar to paragraph (a),
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notwithstanding section 25, the profits and gains referred to in section 835AF(1)(b) shall be charged to corporation tax on the entity concerned as if the business carried on in the State by the disregarded permanent establishment was carried on by a company resident in the State.
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Chapter 4
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Financial instruments
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Interpretation (Chapter 4)
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835AH.(1) In this Chapter—
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‘financial instrument’ includes—
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(a) securities, within the meaning of section 135(8),
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(b) shares in a company and similar ownership rights (not being securities) in entities other than a company,
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(c) futures, options, swaps, derivatives and similar instruments that give rise to a financing return,
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(d) an arrangement where it is reasonable to consider that the arrangement is equivalent to an arrangement for the lending of money, or money’s worth, at interest, and
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(e) hybrid transfers;
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‘hybrid transfer’ means an arrangement to transfer a financial instrument where the underlying return on that instrument is treated, for tax purposes, as derived by more than one of the parties to the arrangement;
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‘financial trader’ means an enterprise that has entered into a financial instrument as part of a business which involves regularly buying and selling financial instruments on that enterprise’s own account;
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‘on-market hybrid transfer’ means a hybrid transfer—
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(a) that is entered into by a financial trader in the ordinary course of its trade, which includes the business of buying and selling financial instruments, and
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(b) in respect of which the financial trader is required by the payer territory concerned to include, for the purposes of that territory’s tax laws, as trading income all amounts received in connection with the transferred financial instrument concerned;
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‘financing return’, in relation to a financial instrument, includes—
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(a) dividends and manufactured payments,
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(b) interest, including any discounts or amounts which would be treated as interest under Part 8A, notwithstanding that no election is made under section 267U,
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(c) the amount of payments that are equivalent to interest under an arrangement described at paragraph (d) of the definition of ‘financial instrument’, and
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(d) the underlying return referred to in the definition of ‘hybrid transfer’;
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‘manufactured payment’ has the same meaning as it has in Chapter 3 of Part 28.
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(2) For the purposes of this Chapter—
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(a) a corresponding amount relating to a payment under a financial instrument shall not be treated as included under paragraph (a)(i) of the definition of ‘included’ in section 835Z(1) where, under the tax laws of the payee territory, the amount that is charged to foreign tax is subject to any reduction computed by reference to the way the payment to which the corresponding amount relates is characterised under those laws, and
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(b) a corresponding amount relating to a payment under a financial instrument shall not be treated as included under paragraph (a)(i) of the definition of ‘included’ in section 835Z(1) unless—
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(i) the corresponding amount is included in a tax period which commences within twelve months of the end of the tax period in which the payment is deducted (in this paragraph referred to as the ‘first-mentioned period’), or
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(ii) it would be reasonable to consider that—
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(I) the corresponding amount will be included in a tax period subsequent to the first-mentioned period, and
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(II) the terms applicable to the payment are those that would apply to a transaction made at arm’s length.
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Application of Chapter 4
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835AI. This Chapter shall apply—
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(a) to a company which is within the charge to domestic tax, and
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(b) to a transaction that gives rise to a mismatch outcome between—
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(i) entities that are associated enterprises,
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(ii) the head office of an entity and a permanent establishment of that entity, or
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(iii) two or more permanent establishments of an entity,
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other than where that transaction is an on-market hybrid transfer.
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Financial instrument deduction without inclusion mismatch outcome
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835AJ.(1) A financial instrument deduction without inclusion mismatch outcome shall arise where it would be reasonable to consider that—
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(a) there is, or but for this section would be, a deduction in the payer territory, without a corresponding amount being included in the payee territory, and
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(b) the satisfaction of the condition described in paragraph (a) is attributable to differences between domestic tax and foreign tax in the characterisation of—
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(i) a financial instrument, or
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(ii) payments made under a financial instrument.
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(2) A financial instrument deduction without inclusion mismatch outcome shall be neutralised as follows:
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(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;
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(b) where—
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(i) the State is the payee territory, and
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(ii) a deduction has not been denied in the payer territory through the operation of a provision similar to paragraph (a),
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then—
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(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
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(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.
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Chapter 5
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Hybrid entities
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Application of Chapter 5
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835AK.(1) This Chapter shall apply to a transaction that gives rise to a mismatch outcome between—
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(a) entities that are associated enterprises,
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(b) the head office of an entity and a permanent establishment of that entity, or
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(c) two or more permanent establishments of an entity.
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(2) Section 835AL applies to a company which is within the charge to corporation tax.
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(3) Section 835AM applies to a company which is within the charge to foreign tax or corporation tax.
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Payment to hybrid entity deduction without inclusion mismatch outcome
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835AL.(1) A payment to a hybrid entity deduction without inclusion mismatch outcome shall arise in respect of a payment to a hybrid entity where—
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(a) there is, or but for this section would be, a deduction in the payer territory without a corresponding amount being included in the payee territory, and
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(b) the satisfaction of the condition described in paragraph (a) is attributable to differences in the allocation of payments to a hybrid entity between—
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(i) the territory in which the hybrid entity is established, and
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(ii) the territory in which the participator concerned is established.
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(2) A payment to a hybrid entity deduction without inclusion mismatch outcome shall be neutralised, where the State is the payer territory, notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, by denying the payer 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.
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Payment by hybrid entity deduction without inclusion mismatch outcome
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835AM.(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—
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(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
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(b) the satisfaction of the condition described in paragraph (a) is attributable to the payment being disregarded under the laws of the payee territory.
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(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.
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(3) A payment by a hybrid entity deduction without inclusion mismatch outcome shall be neutralised as follows:
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(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;
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(b) where—
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(i) the State is the payee territory, and
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(ii) a deduction has not been denied in the payer territory through the operation of a provision similar to subsection (a),
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then—
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(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
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(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.
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Chapter 6
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Withholding tax
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Application of Chapter 6
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835AN. This Chapter shall apply to an entity which is within the charge to corporation tax.
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Withholding tax mismatch outcome
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835AO.(1) A withholding tax mismatch outcome shall arise where—
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(a) an entity enters into a hybrid transfer (within the meaning of Chapter 4), and
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(b) it is reasonable to consider that the purpose of the hybrid transfer is to secure relief for more than one party to the hybrid transfer in respect of an amount of tax withheld at source.
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(2) A withholding tax mismatch outcome shall, notwithstanding anything in Schedule 24 to the contrary, be neutralised by the relief available in respect of an amount of tax withheld at source being reduced by the following fraction—
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A/B
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where—
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A is the profit of the entity from the hybrid transfer on which domestic tax finally falls to be borne, and
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B is the gross income of the entity under the hybrid transfer.
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Chapter 7
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Tax residency mismatch
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Application of Chapter 7
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835AP. This Chapter applies to a company which is within the charge to—
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(a) corporation tax, because it is tax resident in the State under the laws of the State, and
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(b) foreign tax in a territory other than the State, because it is regarded as tax resident in that territory under the tax laws of that territory.
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Tax residency double deduction mismatch outcome
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835AQ.(1) A tax residency double deduction mismatch outcome shall arise where—
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(a) there is, or but for this section would be, a double deduction arising in respect of a payment, to the extent the amount of the deduction is not, or would not be, deductible against dual inclusion income, and
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(b) the satisfaction of the condition described in paragraph (a) is attributable to the company being within the charge to both corporation tax and foreign tax.
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(2) Subject to subsection (3), a tax residency double deduction mismatch outcome shall be neutralised—
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(a) where the other territory within which the company is subject to a charge to tax is a Member State, with the government of which arrangements having the force of law by virtue of section 826(1) have been made, and under those arrangements the company is tax resident in that Member State,
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(b) where—
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(i) the other territory within which the company is subject to a charge to tax is not a Member State, and
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(ii) under arrangements, having the force of law by virtue of section 826(1), with the government of that other territory—
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(I) the company is not tax resident in the State, or
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(II) the company is tax resident in the State but a deduction has not been denied in the other territory through the operation of a provision similar to this Chapter,
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| |
or
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| |
(c) where the other territory within which the company is subject to a charge to tax is not a territory referred to in paragraph (a) or (b),
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notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, by the company being denied a deduction for the purposes of domestic tax for so much of the payment as corresponds to the mismatch outcome which has not been neutralised in another territory.
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| |
(3) Where the tax residence of a company must be determined by mutual agreement between the competent authorities of both territories which are party to an arrangement referred to in subsection (2)(a) or (b), then any adjustment to the return, filed pursuant to section 959I, required to give effect to subsection (2) shall be made without unreasonable delay upon that agreement, notwithstanding any time limits in Part 41A.
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Chapter 8
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| |
Imported mismatch outcomes
|
|
| |
Application of Chapter 8
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| |
835AR. This Chapter shall apply to—
|
|
| |
(a) a company which is within the charge to domestic tax, and
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|
| |
(b) a mismatch outcome which arises through a transaction or series of transactions—
|
|
| |
(i) that is or are, as the case may be, between—
|
|
| |
(I) entities that are associated enterprises,
|
|
| |
(II) the head office of an entity and a permanent establishment of that entity, or
|
|
| |
(III) two or more permanent establishments of an entity,
|
|
| |
and
|
|
| |
(ii) under which there is a payment by a company established in the State to a payee established in a state that is not a Member State.
|
|
| |
Imported mismatch outcome
|
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| |
835AS.(1) An imported mismatch outcome shall arise where it would be reasonable to consider that—
|
|
| |
(a) a company referred to in section 835AR(a) enters into a transaction, or series of transactions, involving a mismatch outcome where a payment by that company directly or indirectly funds the mismatch outcome, and
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|
| |
(b) the mismatch outcome has not been neutralised by the application of a provision similar to this Part in another territory.
|
|
| |
(2) An imported mismatch outcome shall, notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, be neutralised by the company being denied a deduction for the purposes of domestic tax for so much of the payment as corresponds to the mismatch outcome which has not been neutralised in another territory.
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(3) In determining, for the purposes of subsection (1) whether a mismatch outcome has arisen from a transaction or series of transactions, this Part, other than this Chapter, shall be applied as if ‘domestic tax’ and ‘foreign tax’ were defined as follows:
|
|
| |
‘domestic tax’ means a tax chargeable on profits or gains, under the laws of a territory in which an entity is established, that is similar to income tax, corporation tax (including a charge under Part 35B) or capital gains tax;
|
|
| |
‘foreign tax’ means a tax chargeable on profits or gains, under the laws of a territory in which the entity is not established, that is similar to income tax, corporation tax (including a charge under Part 35B) and capital gains tax.
|
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| |
Chapter 9
|
|
| |
Structured arrangements
|
|
| |
Application of Chapter 9
|
|
| |
835AT. (1) This Chapter shall apply to a company which is within the charge to domestic tax.
|
|
| |
(2) Notwithstanding sections 835AC, 835AE, 835AI and 835AK, this Chapter shall apply where a mismatch outcome arises under a structured arrangement.
|
|
| |
Structured arrangements
|
|
| |
835AU.(1) A structured arrangement mismatch outcome shall arise where a company, referred to in section 835AT(1), would reasonably be expected to be aware that—
|
|
| |
(a) it entered into a structured arrangement,
|
|
| |
(b) it shared in the value of the tax benefit resulting from the mismatch outcome, and
|
|
| |
(c) the mismatch outcome has not been neutralised through the application of a provision similar to this Part in another territory.
|
|
| |
(2) A structured arrangement mismatch outcome shall, notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, be neutralised by the taxpayer being denied a deduction for the purposes of domestic tax for so much of the payment as corresponds to the mismatch outcome which has not been neutralised in another territory.
|
|
| |
(3) In determining, for the purposes of subsection (1) whether a mismatch outcome has arisen from a transaction or series of transactions, this Part, other than this Chapter, shall be applied as if ‘domestic tax’ and ‘foreign tax’ were defined as follows:
|
|
| |
‘domestic tax’ means a tax chargeable on profits or gains, under the laws of a territory in which an entity is established, that is similar to income tax, corporation tax (including a charge under Part 35B) or capital gains tax;
|
|
| |
‘foreign tax’ means a tax chargeable on profits or gains, under the laws of a territory in which the entity is not established, that is similar to income tax, corporation tax (including a charge under Part 35B) and capital gains tax.
|
|
| |
Chapter 10
|
|
| |
Carry forward
|
|
| |
Carry forward
|
|
| |
835AV. To the extent a deduction has been denied under this Part (the ‘denied amount’) in respect of a tax period of an entity, the entity may make a claim requiring that the denied amount be set off for the purposes of domestic tax against any dual inclusion income in succeeding tax periods of the entity and amounts so carried forward shall be relieved first against profits or gains of an earlier tax period in advance of profits or gains of a later tax period.
|
|
| |
Chapter 11
|
|
| |
Application of this Part
|
|
| |
Scope of application
|
|
| |
835AW. This Part shall apply to payments made or arising on or after 1 January 2020.
|
|
| |
Order of application
|
|
| |
835AX.(1) This Part shall apply after all provisions of the Tax Acts and the Capital Gains Tax Acts, other than section 811C.
|
|
| |
(2) A mismatch outcome shall not be neutralised under more than one Chapter of this Part.”.
|
| |
5 OJ No. L193, 19.7.2016, p. 1
6 OJ No. L144, 7.6.2017, p. 1 |
