Section 259DE | The financial trader exclusion

(1)This section has effect for the purposes of section 259DC(9).

(2)The financial trader exclusion applies, in relation to an excess or part of an excess mentioned in section 259DC(2) or an under-taxed amount, where conditions A to C are met.

(3)Condition A is that the excess or part arises, or the under-taxed amount is under taxed, because the payment or quasi-payment—

(a)is a substitute payment,

(b)is treated, for the purposes of tax charged on a person, so as to reflect the fact that it is representative of the underlying return, and

(c)is brought into account by another person (“the financial trader”) in calculating the profits of a trade under—

(i)Part 3 of CTA 2009 (trading income), or

(ii)an equivalent provision of the law of a territory outside the United Kingdom.

(4)Condition B is that the financial trader also brings any associated payments into account as mentioned in subsection (3)(c).

(5)In subsection (4) “associated payment” means a payment or quasi-payment—

(a)in relation to which the financial trader is the payer or a payee, and

(b)that is made under, or in connection with, the underlying instrument or an arrangement that relates to the underlying instrument.

(6)Condition C is that—

(a)if the underlying return were to arise, and be paid directly, to the payee or payees in relation to the substitute payment, neither Chapter 3 (hybrid and other mismatches from financial instruments) nor any equivalent provision under the law of a territory outside the United Kingdom would apply, and

(b)the hybrid transfer arrangement under, or in connection with, which the substitute payment is made is not a structured arrangement (within the meaning given by section 259DA(7) and (8)).