107“Effective tax mismatch outcome”U.K.
(1)This section applies for the purposes of sections 80 and 86(2).
(2)In this section “the first party” and “the second party” mean—
(a)where this section applies for the purposes of section 80, C and P (within the meaning of section 80) respectively, and
(b)where this section applies for the purposes of section 86(2), the foreign company and A (within the meaning of section 86) respectively.
(3)The material provision results in an effective tax mismatch outcome as between the first party and the second party for an accounting period of the first party if—
(a)in that accounting period, in relation to a relevant tax, it results in one or both of—
(i)expenses of the first party for which a deduction has been taken into account in computing the amount of the relevant tax payable by the first party, or
(ii)a reduction in the income of the first party which would otherwise have been taken into account in computing the amount of a relevant tax payable by the first party,
(b)the resulting reduction in the amount of the relevant tax which is payable by the first party exceeds the resulting increase in relevant taxes payable by the second party for the corresponding accounting period of the second party,
(c)the results described in paragraphs (a) and (b) are not exempted by subsection (6), and
(d)the second party does not meet the 80% payment test.
(4)In this Part, references to “the tax reduction” are to the amount of the excess mentioned in subsection (3)(b).
(5)It does not matter whether the tax reduction results from the application of different rates of tax, the operation of a relief, the exclusion of any amount from a charge to tax, or otherwise.
(6)The results described in subsection (3)(a) and (b) are exempted if they arise solely by reason of—
(a)contributions paid by an employer under a registered pension scheme, or overseas pension scheme, in respect of any individual,
(b)a payment to a charity,
(c)a payment to a person who, on the ground of sovereign immunity, cannot be liable for any relevant tax, or
(d)a payment to an offshore fund or authorised investment fund—
(i)which meets the genuine diversity of ownership condition (whether or not a clearance has been given to that effect), or
(ii)at least 75% of the investors in which are, throughout the accounting period, registered pension schemes, overseas pension schemes, charities or persons who cannot be liable for any relevant tax on the ground of sovereign immunity.
(7)“The 80% payment test” is met by the second party if the resulting increase in relevant taxes payable by the second party as mentioned in subsection (3)(b) is at least 80% of the amount of the resulting reduction in the amount of the relevant tax payable by the first party as mentioned in subsection (3)(b).
(8)In this section—
“authorised investment fund” means—
(a)an open-ended investment company within the meaning of section 613 of CTA 2010, or
(b)an authorised unit trust within the meaning of section 616 of that Act;
“employer” has the same meaning as in Part 4 of FA 2004 (see section 279(1) of that Act);
“genuine diversity of ownership condition” means—
(a)in the case of an offshore fund, the genuine diversity of ownership condition in regulation 75 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001), and
(b)in the case of an authorised investment fund, the genuine diversity of ownership condition in regulation 9A of the Authorised Investment Fund (Tax) Regulations 2006 (S.I. 2006/964);
“offshore fund” has the same meaning as in section 354 of TIOPA 2010 (see section 355 of that Act);
“overseas pension scheme” has the same meaning as in Part 4 of FA 2004 (see section 150(7) of that Act);
“registered pension scheme” has the same meaning as in that Part (see section 150(2) of that Act);
“relevant tax” means—
(a)corporation tax on income,
(aa)[F1 a sum chargeable under section 269DA of CTA 2010 (surcharge on banking companies) as if it were an amount of corporation tax, ]
(b)a sum chargeable under section 330(1) of CTA 2010 (supplementary charge in respect of ring fence trades) as if it were an amount of corporation tax,
(c)income tax, or
(d)any non-UK tax on income.
(9)See section 108 for further provision about the determination of the tax reduction and the 80% payment test.
Textual Amendments
F1Words in s. 107(8) inserted (with effect in accordance with Sch. 3 Pt. 3 of the commencing Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 3 para. 13