INTM556080 - Hybrids: multinational payee (Chapter 8): extent of the mismatch

If conditions A to E of s259HA are satisfied, the next step is to establish the extent of any multinational payee deduction/non-inclusion mismatch for the purposes of Chapter 8, Part 6A of TIOPA 2010.

S259HB(1) defines a multinational payee deduction/non-inclusion mismatch in relation to a payment or quasi-payment as a mismatch where

  • (a) there is an allowable deduction for the payer that exceeds the sum of ordinary income arising to each of the payees, and
  • (b) all or part of that excess arises because one or more of the payees is a multinational company

The extent of the multinational payee deduction/non-inclusion mismatch is equal to the excess that arises as mentioned in (1)(b).

Amortisation

There is no multinational payee deduction/non-inclusion mismatch so far as the relevant deduction is

  • A debit in respect of amortisation brought into account under section 729 or 731 CTA 2009, or
  • An amount deductible in respect of amortisation under provision of the law of a territory outside the UK that is equivalent to either of those sections

Determining the extent of the mismatch

The legislation requires a comparison of the amount of the excess identified above with the excess that would arise in a counterfactual position. This is detailed at s259HB (2A). The counterfactual position is arrived at by making the assumption that the payee is not a multinational company, and that the payment or quasi-payment arose to the payee in the parent jurisdiction and not in the jurisdiction of its PE. If, on making this assumption

  • the amount of the excess remains unchanged or increases, then there is no mismatch arising as a result of the payee being a multinational company
  • the amount of the excess is reduced, then the amount by which the excess is reduced is the mismatch that arises because the payee is a multinational company

The amount of the multinational payee deduction/non-inclusion mismatch is the amount of the excess that arises because the payee is a multinational company.

If the PE jurisdiction makes no provision for charging tax on companies, then the excess that arises is not to be taken to arise by reason of that payee being a multinational company.

It does not matter if the excess would have arisen for other reasons as well.