INTM554050 - Hybrids: transfers by UK permanent establishment of a multinational company (Chapter 6): conditions to be satisfied: condition C

Condition C of s259FA TIOPA 2010 is satisfied if, disregarding the provisions of Chapters 6 to 10 of Part 6A, it is reasonable to suppose that those circumstances do not result in either (1)

  • an increase in taxable profits of the company for any permitted taxable period, or
  • a reduction of a loss made by the company for any permitted taxable period,

for the purposes of tax charged in the parent jurisdiction, or

  • the circumstances result in an increase in profits or a reduction of a loss for one or more permitted taxable periods, but the aggregate effect on taxable profits is less than the PE deduction

The aggregate effect on taxable profits is the sum of

  • any increases in taxable profits of the company for the purposes of the parent jurisdiction which are related to the PE deduction and
  • the amount of any reduction of a loss made by the company

For the purposes of 259FA (6) Condition C and 259FA(7) any increase in taxable profits or reduction in losses is to be ignored in any case where tax is charged at a nil rate under the law of the parent jurisdiction – effective from 1 January 2018.

When calculating the aggregate effect on taxable profits, you should take into account only the figures for a permitted taxable period that are in relation to a tax charged in the parent jurisdiction.

The aim is to establish whether the company has reflected a corresponding taxable receipt equal to the amount of the deduction claimed.

A permitted taxable period is a taxable period of the company for the purposes of a tax charged under the law of the parent jurisdiction, that

  • begins before the end of 12 months after the end of the accounting period in which the PE deduction falls for the purposes of corporation tax in the UK, or
  • where the period begins after that
    • (i) claim has been made for the period to be a permitted period in relation to the amount of ordinary income, and
    • (ii) is just and reasonable for the circumstances giving rise to the PE deduction to affect the profits or loss made for that period rather than an earlier period