INTM553070 - Hybrids: hybrid payer (Chapter 5): conditions to be satisfied: condition E

Condition E of s259EA TIOPA 2010 is satisfied where one of the following applies

  • (for a quasi-payment only) - the hybrid payer is also a payee
  • (for a payment or quasi-payment) - the hybrid payer and a payee are in the same control group at any time from when the arrangement is made to the last day of the payment period, or
  • (for a payment or quasi-payment) - the arrangement is a structured arrangement

A hybrid payer is also a payee if an entity is not a distinct and separate person from the payer for the purposes of a tax charged under UK law, but is a distinct and separate person under the law of the payer jurisdiction, and it would be reasonable to expect ordinary income to arise to that entity as defined in section 259BB(7).

For example, a payment made by a partnership to one of the partners has the same payer and payee from a UK perspective.

Control groups

Control groups are defined at s259NB. More detailed guidance on control groups is at INTM550610. A hybrid payer and a payee are in the same control group if:

  • they are consolidated for accounting purposes
  • one entity participates directly or indirectly in the management, control or capital of the other
  • a third person(s) participates directly or indirectly in the management, control or capital of each of the entities
  • one entity has a 50% investment in the other, or
  • a third person has a 50% investment in each of the entities within a 6-month period

Structured arrangement

An arrangement is a structured arrangement where it is reasonable to suppose that

  • it is designed to secure a hybrid payee deduction/non-inclusion mismatch, or
  • the terms of the arrangement share the economic benefit of the mismatch between the parties to that arrangement, or otherwise reflect an expected mismatch

An arrangement designed to secure a commercial or other objective may also be designed to secure a hybrid payee deduction/non-inclusion mismatch. When considering this issue, the test is whether it is reasonable to suppose that the arrangement was designed to secure the mismatch regardless of any other objective.