(1) Subject to subsection (1A), a payment to a hybrid entity deduction without inclusion mismatch outcome shall arise in respect of a payment to a hybrid entity where it would be reasonable to consider that -
(a) there is, or but for this section would be, a deduction in the payer territory without a corresponding amount being included in the payee territory, and
(b) the satisfaction of the condition described in paragraph (a) is attributable to differences in the allocation of payments to a hybrid entity between -
(i) the territory in which the hybrid entity is established, and
(ii) the territory in which the participator concerned is established.
(1A) A payment to a hybrid entity deduction without inclusion mismatch outcome shall not arise under subsection (1) in respect of a payment to a hybrid entity where the participator is an entity that, under the laws of the territory in which it is established, is exempt from tax which generally applies to profits or gains in that territory.
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