INTM555090 - Hybrids: hybrid payee (Chapter 7): extent of the mismatch – hybrid payee not chargeable to tax in any territory
There are a number of areas where the provisions in Part 6A TIOPA 2010 have a broader scope than the OECD recommendations. One example of this is where Chapter 7 of Part 6A applies to mismatches arising because a hybrid payee is not within the charge to tax in any territory.
The legislation treats an amount as arising from the payee being a hybrid payee where the conditions set out at s259GB(3) are satisfied.
S259GB(3) treats a relevant amount of the excess as arising from hybridity where
- a hybrid payee is not resident in any territory which imposes a tax charge, including tax charged at a nil rate or
- a hybrid payee does not have ordinary income arising from a payment or quasi-payment in respect of a permanent establishment in any territory, and
- (in both circumstances) that payee does not have income arising from the payment or quasi-payment on which a CFC charge arises
The excess is the amount by which the relevant deduction exceeds the sum of ordinary income arising to the payees, and which results wholly or partly from the hybridity of one or more of the payees.
A ‘relevant amount’ of the excess is defined at s259GB(4) as the lesser of the excess, and the amount of ordinary income that would arise to a particular payee by reason of the payment or quasi-payment if
- that payee were a company, and
- the payment was made in connection with a UK trade carried on by the payee through a UK branch
Where there are multiple payees in relation to any payment or quasi-payment, it is important to calculate a relevant amount of the excess for each payee (from a UK perspective) before carrying out a separate s259GB(3) test on each relevant amount. This ensures that the relevant amounts are not all treated as arising from the hybridity of just one payee and that any disallowance is proportionate. See the example at INTM555210.