Taxation (International and Other Provisions) Act 2010 section 259DD

Interpretation of section 259DC

Section 259DD defines key terms used in determining whether a hybrid transfer deduction/non-inclusion mismatch exists, including what counts as a "permitted" taxable period, when income is "under-taxed", and how capital amounts are brought into the calculations.

• A payee's taxable period is "permitted" if it begins within 12 months after the end of the payment period, or later if it is just and reasonable for the income to arise in that later period.
• Income is "under-taxed" if the highest rate of tax actually charged on it (after allowing for credits for underlying tax) is less than the payee's "full marginal rate" — the highest rate that could apply to taxable profits including ordinary income from a financial instrument.
• Capital amounts subject to capital gains tax (or an equivalent foreign tax) are treated as ordinary income for the purposes of the mismatch test, but any excess of the capital tax rate over the income tax rate is ignored.
• A capital amount is not treated as taxed to the extent it benefits from specific exemptions, reliefs or credits, or the tax on it is refunded.