Section 217D | Effective tax mismatch outcome

(1)Provision between the company and the other party has an effective tax mismatch outcome for an accounting period if the corresponding amount is less than 80% of the underlying corporation tax amount.

(2)“The underlying corporation tax amount” is the amount determined by multiplying the amount of the unassessed transfer pricing profits by the underlying corporation tax rate (within the meaning of section 217A(4)).

(3)“The corresponding amount” means the amount (which may be nil) of relevant tax—

(a)that is due and payable by the other party and that—

(i)where it has been paid, has not been refunded and would not be refunded if all reasonable steps were taken to secure that it was refunded;

(ii)otherwise, would remain due and payable if all reasonable steps were taken to minimise the amount, and

(b)charged (in any period) on profits that correspond to the unassessed transfer pricing profits.

(4)The steps mentioned in subsection (3)(a) include—

(a)claiming, or otherwise securing the benefit of, reliefs, deductions, reductions or allowances, and

(b)making elections for the purposes of the relevant tax.

(5)For the purposes of subsection (3)—

(a)an amount of relevant tax is refunded if and to the extent that—

(i)any repayment of tax, or any payment in respect of a credit for tax, is made to any person, and

(ii)that repayment or payment is directly or indirectly in respect of the whole or part of the amount of relevant tax paid by the other party;

(b)any withholding tax which is due and payable on payments made to the other party is (unless it is refunded within the meaning of paragraph (a)) to be treated as tax which is due and payable by the other party (and not the person making the payment).

(6)Where the other party is a transparent entity, the provision is to be treated as having an effective tax mismatch outcome for an accounting period unless HMRC is satisfied that it does not have such an outcome for the accounting period.

(7)For the purposes of this section, the other party is a “transparent entity” if, for the purposes of relevant tax charged under the law of the territory in which the other party is legally constituted, profits that correspond to the unassessed transfer pricing profits are treated as the income or profits of a person or persons other than the other party.

(8)Where the other party is a transparent entity—

(a)references in this section to relevant tax that is due and payable or paid by the other party include a reference to relevant tax that is due and payable or paid by any person as a result of profits which correspond to the unassessed transfer pricing profits being treated for the purposes of relevant tax charged under the law of any territory as the income or profits of that person;

(b)subsection (5)(b) applies to any such persons as it applies to the other party.

(9)In this section “relevant tax” means—

(a)income tax,

(b)corporation tax on income,

(c)any amount chargeable as if it were corporation tax or treated as if it were corporation tax (other than the CFC charge within the meaning of Part 9A of this Act), or

(d)any foreign tax.