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

Hybrid payer deduction/non-inclusion mismatches and their extent

Section 259EB defines what constitutes a hybrid payer deduction/non-inclusion mismatch in relation to a payment or quasi-payment, sets out how to measure the extent of such a mismatch, and provides rules for determining whether the mismatch arises because of the hybrid nature of the payer.

• A mismatch arises where the payer's deduction exceeds the total ordinary income recognised by the payees, and some or all of that excess is attributable to the payer being a hybrid entity
• The size of the mismatch is limited to the portion of the excess that is caused by the payer's hybrid status, and amortisation deductions for intangible fixed assets are excluded from the calculation
• When testing whether the excess is caused by hybridity, certain assumptions are applied — for example, ignoring any tax exemptions or reliefs the payee benefits from, and assuming the payment is connected to a business the payee carries on in its jurisdiction
• Any excess attributable to a qualifying institutional investor that already recognises the hybrid entity's income under its local law is carved out and does not count as a hybrid payer mismatch