INTM555130 - Hybrids: hybrid payee (Chapter 7): counteraction: hybrid payee is a LLP

This counteraction applies to a hybrid payee that is a Limited Liability Partnership (LLP), and treats all or part of the hybrid payee deduction/non-inclusion mismatch as income arising to the hybrid payee on the last day of the payment period.

The counteraction at s259GE applies only where it is reasonable to suppose that there has been

  • no counteraction against the payer under s259GC, or any equivalent non-UK provisions
  • no counteraction against investors in a hybrid payee is possible under s259GD, or any equivalent non-UK provisions, or
  • if counteraction has been applied under the above provisions, it does not fully counteract the mismatch

The mismatch is fully counteracted only if the application of the above provisions reduces the payer’s deduction by the full amount of the mismatch (as quantified under s259GB). When considering this, the amount of the mismatch is adjusted to take account of any secondary counteraction against investors in the hybrid payee.

The mismatch is not fully counteracted if the payer may still deduct part of the mismatch. In these cases, the amount of the mismatch not counteracted is the lesser of

  • the amount of the deduction that the payer may still deduct, and
  • the amount of the mismatch that it is reasonable to suppose is not counteracted by sections 259GC and 259GD, or equivalent non-UK provisions

If there is more than one hybrid payee you should apportion the relevant amount on a just and reasonable basis, particularly taking into account

  • any profit sharing arrangements between some or all of the payees, and
  • the extent to which it is reasonable to suppose that the mismatch arises by reason of each hybrid payee being a hybrid entity

Section 863 ITTOIA 2005 (treatment of certain limited liability partnerships for income tax purposes) and section 1273 of CTA 2009 (treatment of certain limited liability partnerships for corporation tax purposes) may allocate the income of an LLP carrying on a trade, profession or business with a view to profit to its members.

For the purposes of these rules s259GE(8) will disapply those sections and the LLP is chargeable to corporation tax on any income treated as arising as a result of counteraction under s259GE.