Taxes Consolidation Act 1997 section 835Z

Interpretation (Part 35C)

Section 835Z sets out the definitions and interpretation rules for Part 35C, which contains the anti-hybrid mismatch provisions implementing the EU Anti-Tax Avoidance Directives (ATAD and ATAD2).

• The section defines key terms including "arrangement", "entity", "hybrid entity", "payment", "deduction", "mismatch outcome", and "structured arrangement", all of which underpin the operation of the anti-hybrid rules throughout Part 35C.
• A "hybrid entity" is one that is treated as a taxable person (opaque) under the laws of one territory but as tax transparent under the laws of another, such that its profits are treated as accruing to another enterprise (the "participator") — this differing characterisation is central to the mismatch outcomes the rules target.
• A payment is "included" where the profits or gains arising from it are taken into account in the taxable income of the payee, are received by a tax-exempt entity such as a pension fund or government body, or are subject to a CFC charge — the concept is deliberately broad so that the rules do not penalise payments to entities that are simply exempt from tax under the general features of a territory's tax system.
• An entity is treated as established in the territory where it is effectively managed (rather than where it is incorporated) if those two territories differ, and a permanent establishment is treated as established in the territory where it carries on business.