8‑120 Meaning of deduction/non‑inclusion8‑120 Meaning of deduction/non‑inclusion arrangement

8‑120 Meaning of deduction/non‑inclusion arrangement

(1) A deduction/non‑inclusion arrangement is an arrangement: (a) under which a Constituent Entity (the investor) of an MNE Group directly or indirectly provides credit or otherwise makes an investment in another Constituent Entity of the MNE Group (the recipient); and (b) the provision of the credit or making of the investment results in an expense or loss in the financial statements of the recipient; to the extent that: (c) there is no commensurate increase in the revenue or gain in the financial statements of the investor; or (d) the investor is not reasonably expected over the life of the arrangement to have a commensurate increase in its taxable income. (2) Despite subsection (1), an arrangement is not a deduction/non‑inclusion arrangement to the extent that the relevant expense or loss is solely with respect to Additional Tier One Capital. (3) For the purposes of paragraph (1)(d), the investor does not have a commensurate increase in its taxable income to the extent that: (a) if an amount is included in its taxable income—the amount included in its taxable income is offset by a tax attribute (such as a loss carry forward or an unused interest carry forward) with respect to which a valuation adjustment or accounting recognition adjustment: (i) has been made; or (ii) would have been made if the adjustment determination were made without regard to the investor’s ability to use the tax attribute with respect to any Hybrid Arbitrage Arrangement entered into after 15 December 2022; or (b) the provision of the credit or making of the investment that results in the expense or loss of the recipient mentioned in paragraph (1)(b): (i) gives rises to a taxable deduction or loss of a Constituent Entity of the MNE Group that is located in the same jurisdiction as the investor; and (ii) is not included as an expense or loss in determining the MNE Group’s Profit (Loss) before Income Tax for the jurisdiction (including as a result of being an expense or loss in the financial statements of a Flow‑through Entity which is owned by a Constituent Entity of the MNE Group that is located in the jurisdiction of the investor).