INTM556030 - Hybrids: multinational payee (Chapter 8): conditions to be satisfied: condition A

Condition A of s259HA requires there to be a payment or quasi-payment made under, or in connection with, an arrangement. Definitions of the key terms for this condition are at s259BB.

A payment is any transfer of money or money’s worth in relation to which an allowable deduction arises in calculating the taxable profits of the payer if Part 6A (or a non-UK equivalent of Part 6A) did not apply.

An amount is a quasi-payment if

  • an allowable deduction would arise in calculating the taxable profits of the payer, if Part 6A (or a non-UK equivalent of Part 6A) did not apply, and
  • the circumstances giving rise to the deduction may reasonably be expected to result in ordinary income of one or more persons if certain assumptions were to apply

See INTM550540 for more detail on quasi-payments.

There is nothing to prevent an amount satisfying the definition of being both a payment and a quasi-payment.

The payer jurisdiction is the jurisdiction in which the deduction is available for tax purposes.

Deductions deemed to arise for tax purposes under the law of the payer jurisdiction are not quasi-payments if the circumstances giving rise to the deduction do not include economic rights between the payer and a payee.

Condition A also requires that the payment or quasi-payment be made under an arrangement. S259NF sets out the definition of an ‘arrangement’ for the purposes of this legislation to include any agreement, understanding, scheme, transaction, or series of transactions (whether legally enforceable or not).

Ordinary income

In broad terms, ordinary income means income that is brought into account when calculating taxable profits on which tax is charged. The full definition, including restrictions on what may be regarded as ordinary income and where specific reliefs may be treated as reducing the amount of ordinary income, is at s259BC and the concept is discussed further at INTM550560.

There are special recognition rules at s259BD for treating an amount of income as if it had been included where it has been subjected to another territory’s controlled foreign companies (CFC) charge. This is discussed in more detail at INTM550570.