(1) The following provisions of this Part come into force on the day on which this Act is passed—
(a) this Chapter, and
(b) any other provision of this Part so far as it confers a power to make regulations.
(2) The other provisions of this Part (so far as not brought into force by subsection (1)) come into force on such day or days as the Commissioners may by regulations appoint.
(3) Different days may be appointed for different purposes or different areas.
(4) The Commissioners may by regulations make consequential, supplementary, incidental, transitional or saving provision in connection with the coming into force of any provision of this Part.
(5) The power to make regulations under subsection (4)—
(a) may be exercised so as to make different provision for different purposes or areas, and
(b) includes power to make provision of a kind described in section 118(3)(a) to (c).
(6) Regulations under this section are to be made by statutory instrument.
(1) The purpose of this Part is to implement the provisions of the Pillar Two rules relating to top-up tax under the IIR and UTPR (within the meaning of the Pillar Two rules).
(2) For that purpose, this Part makes provision for a tax payable in respect of members of multinational groups who are located in territories (outside the United Kingdom) where their rate of tax (as determined in accordance with this Part) is less than 15%.
(3) The tax is to be known as “multinational top-up tax”.
(4) Sections 122 to 124 set out the charge to multinational top-up tax and describe how it is to be calculated.
(5) Chapter 2 of this Part—
(a) sets out the meaning of “multinational group”;
(b) describes who the members of such a group are;
(c) identifies the ultimate parent of such a group;
(d) limits the application of this Part to multinational groups with an annual revenue of at least 750 million euros and that have at least one member in the United Kingdom (such a group is referred to in this Part as “qualifying”);
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) A person is chargeable to multinational top-up tax for an accounting period of a multinational group if the group is a qualifying multinational group in that period and—
(a) the person—
(i) is a ... member of the multinational group at any time in that period,
(ii) is a body corporate or a partnership ..., and
(iii) is located in the United Kingdom, or
(b) the person is chargeable to tax in respect of an entity that is a ... member of the multinational group at any time in that period.
(2) A person is chargeable to tax in respect of a ... member of a multinational group if—
(a) the profits of the ... member would, on the relevant assumptions, be the profits of the person for the purposes of income tax or corporation tax,
(b) the ... member is located in the United Kingdom, and
(c) the ... member is not—
(i) a body corporate, or
(ii) a partnership ....
(3) The relevant assumptions are—
(a) that the ... member has profits that are chargeable to income tax or corporation tax, and
(b) that the person is resident in the United Kingdom for the purposes of that tax.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Where more than one person is chargeable to tax in relation to the same ... member of a qualifying multinational group as a result of the application of subsection (2), each of those persons is jointly and severally liable to multinational top-up tax.
(1) A person chargeable to tax as, or in respect of, a member of a multinational group (“the relevant member”) is charged multinational top-up tax for an accounting period if one or more members of the group have top-up amounts or additional top-up amounts for that period and—
(a) the relevant member is a responsible member for one or more of those members (see section 128), or
(b) one or more of those members have untaxed amounts that are allocated to the relevant member (see Chapter 9A).
(2) The amount charged is the sum of the following—
(a) where subsection (1)(a) applies—
(i) top-up amounts attributed to the relevant member in accordance with Chapter 7, and
(ii) additional top-up amounts attributed to the relevant member in accordance with that Chapter, and
(b) where subsection (1)(b) applies, the untaxed amounts allocated to the relevant member in accordance with Chapter 9A.
(3) The amount charged (which in accordance with section 254 will be expressed in the CFS currency) is to be converted to sterling using the average exchange rate for the accounting period (if the CFS currency is not sterling).
(1) Generally, a member of a multinational group in a territory will have a top-up amount for an accounting period if—
(a) the effective tax rate of the members of the group in that territory for that period is less than 15%, and
(b) that member has profits for that period.
(2) Chapter 3 of this Part sets out how to determine the effective tax rate of the members of a multinational group in a territory by reference to the profits of, and the taxes payable by, those members in that territory.
(3) Chapter 4 of this Part sets out how to calculate the profits of members of a multinational group.
(4) Chapter 5 of this Part sets out—
(a) which taxes (referred to in this Part as “covered taxes”) are to be considered in determining the effective tax rate of those members, and
(b) how to determine the amount of covered taxes allocated to those members.
(5) Chapter 6 of this Part sets out how to use the effective tax rate and profits of the members of a multinational group to determine the top-up amounts of those members.
(6) Chapter 7 of this Part sets out how to attribute those top-up amounts to a responsible member of the group.
(7) Chapter 8 of this Part contains provisions about—
(a) additional top-up amounts, and
(b) further adjustments that may need to be made (including provision about adjustments for restructuring of multinational groups).
(8) Chapter 9 of this Part sets out special provision for investment entities, joint venture groups and minority owned members (including provision that applies to those entities instead of provision in the previous Chapters).
(8A) Chapter 9A makes provision for—
(a) determining whether members of the group have untaxed amounts, and
(b) allocating those untaxed amounts to members of the group located in the United Kingdom, other than members that are investment entities or joint venture group members.
(9) Chapter 10 of this Part contains definitions and other provisions relevant to the calculations and other determinations to be made for the purposes of multinational top-up tax and Chapter 11 contains general provision.
Schedule 14 makes provision for—
(a) information returns which must be made in respect of multinational groups,
(b) assessments to multinational top-up tax,
(c) penalties, and
(d) other administrative matters.
126 Meaning of “multinational group” and “ultimate parent”
(1) References in this Part to a multinational group are to a consolidated group where at least one of the members of that group is not located in the same territory as the others.
(2) A “consolidated group” means the following entities (which are its members)—
(a) an entity (the “ultimate parent”)—
(i) in which no other entity has a controlling interest, and
(ii) which has a controlling interest in other entities, and
(b) the entities whose assets, liabilities, income, expenses and cash flows—
(i) are included in the consolidated financial statements of the ultimate parent, or
(ii) are not included in those statements only because of an exclusion on size or materiality grounds or on the grounds that the entity in question is held for sale.
(1) For the purposes of this Part, excluded entities are to be treated as not being members of a multinational group.
(2) But subsection (1) does not apply for the purposes of the following provisions—
(a) section 126 (and accordingly an excluded entity that is the ultimate parent of multinational group remains the ultimate parent of that group),
(b) this section, and
(c) section 129 (determining whether a multinational group is qualifying).
(3) The following are excluded entities—
(a) a governmental entity;
(b) an international organisation;
(c) a pension fund;
(d) a non-profit organisation;
(e) a qualifying non-profit subsidiary;
(f) a qualifying service entity;
(g) a qualifying exempt income entity.
(4) The following are also excluded entities if they are the ultimate parent of a multinational group, or would be but for the fact they do not produce consolidated financial statements that include assets, liabilities, income expenses and cash flows of entities in which they have ownership interests—
(a) an investment fund,
(b) a UK REIT, or
(c) an overseas REIT equivalent.
(5) An entity is a qualifying non-profit subsidiary in an accounting period if—
(a) the entity or, in the case of a permanent establishment, the main entity is 100% owned by one or more entities that are non-profit organisations,
(b) the revenue (see section 129(5)) of the multinational group of which the entity is a member, excluding the revenues of each member that is a non-profit organisation, a qualifying service entity or a qualifying exempt income entity—
(i) would not exceed the threshold set out in section 129(4), and
(ii) is less than 25% of the total revenue of the group, and
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(d) no election under subsection (8) is in force in relation to the entity.
(6) An entity is a qualifying service entity if—
(a) the entity or, in the case of a permanent establishment, the main entity is 95% owned by one or more qualifying excluded entities,
(b) either—
(i) the entity only carries out activities that are ancillary to the activities of those owners, or
(ii) all, or almost all, of its activities, ignoring activities falling within sub-paragraph (i), consist of the holding of assets or the investment of funds for the benefit of those owners, and
(c) no election under subsection (8) is in force in relation to the entity.
(7) An entity is a qualifying exempt income entity if—
(a) the entity or, in the case of a permanent establishment, the main entity is 85% owned by one or more qualifying excluded entities,
(b) almost all of the entity’s income is excluded dividends or excluded equity gains (or a mixture of both), and
(c) no election under subsection (8) is in force in relation to the entity.
(8) The filing member of a multinational group (see paragraph 2 of Schedule 14) may make an election that a member of that group that would otherwise be an excluded entity as a result of subsection (5), (6) or (7) is not to be an excluded entity.
(9) Schedule 15 makes provision about elections under this Part.
(10) Paragraph 1 of that Schedule (long term elections) applies to an election under subsection (8).
(11) For the purposes of subsection (5), the reference to an entity being 100% owned by one or more entities that are non-profit organisations is to those entities together having that percentage of ownership interest in that entity.
(12) For the purposes of subsections (6) and (7)—
(a) despite section 232(3) (permanent establishments treated as distinct from main entity), the conditions in subsection (6)(b) and (7)(b) are only met in relation to a permanent establishment or a main entity if the conditions are met by the main entity and all of its permanent establishments taken together as if they were a single entity;
(b) an excluded entity is “qualifying” if it is not a pension services entity, and
(c) references to an entity being 95% or 85% owned by qualifying excluded entities are to those entities together having at least that percentage of the ownership interests in that entity (see section 245 for how to calculate ownership interests in excluded entities).
(1) The ultimate parent of a multinational group is a responsible member of that group if it is subject to Pillar Two IIR tax.
(2) An ultimate parent that is a responsible member of a multinational group is responsible for all of the members of the group that are not located in the territory the ultimate parent is located in.
(3) An intermediate parent member of a multinational group (see section 237(2)) that is located in a Pillar Two territory is a responsible member of that group if it is subject to Pillar Two IIR tax and—
(a) no intermediate parent member of that group that is subject to Pillar Two IIR tax has a controlling interest in it,
(b) the ultimate parent is not subject to Pillar Two IIR tax, and
(c) at least one member of the group in which it has an ownership interest, or a permanent establishment for which it is the main entity, has a top-up amount or an additional top-up amount.
(4) Such an intermediate parent member is responsible for —
(a) every permanent establishment for which it is the main entity, ...
(b) all of the members of the group it has an ownership interest in that are not located in the territory it is located in , and
(c) every permanent establishment of a member of the group it has an ownership interest in other than a permanent establishment located in the territory it is located in.
(5) A partially-owned parent member of a multinational group (see section 237(1)) that is located in a Pillar Two territory is a responsible member if it is subject to Pillar Two IIR tax and—
(a) it is not wholly owned by another partially-owned parent member of that group that is subject to Pillar Two IIR tax, and
(b) at least one member of the group in which it has an ownership interest, or a permanent establishment for which it is the main entity, has a top-up amount or an additional top-up amount.
(6) Such a partially owned parent member is responsible for —
(a) every permanent establishment for which it is the main entity, ...
(b) all of the members of the group it has an ownership interest in that are not located in the same territory it is located in , and
(c) every permanent establishment of a member of the group it has an ownership interest in other than a permanent establishment located in the territory it is located in.
(7) For the purposes of this Part an entity is subject to Pillar Two IIR tax for an accounting period if—
(a) the period commences on or after 31 December 2023 and the entity is located in the United Kingdom and is not an excluded entity, or
(b) the entity—
(i) is located in another Pillar Two territory in which a tax equivalent to the IIR provisions of multinational top-up tax is in force for the period, and
(ii) is not excluded from the application of that tax as a result of provision equivalent to section 127.
(7A) If for an accounting period—
(a) the application in relation to an entity located in a territory of a tax equivalent to the IIR provisions of multinational top-up tax depends on the making by any person of an election or claim, and
(b) the tax does not apply in relation to the entity because such an election or claim is or is not made,
subsection (7)(b)(i) has effect in relation to the entity as though the tax were not in force in the territory for the period.
(8) In this section the “IIR provisions of multinational top-up tax” means the provisions of this Part relating to the charging of top-up amounts and additional top-up amounts (but not untaxed amounts).
(1) For the purposes of this Part, a multinational group is “qualifying” in an accounting period if conditions A and B are met.
(2) Condition A is that the group’s members have revenue that exceeds the threshold set out in subsection (4) in at least 2 accounting periods of the previous 4 accounting periods.
(3) Condition B is that at least one of the group’s members is located in the United Kingdom.
(4) The threshold for an accounting period is the amount given by multiplying 750 million euros by the amount given by dividing the number of days in the accounting period by 365.
(5) For the purposes of this section, and section 127(5), the revenue of the members of a multinational group for a period is to be determined by reference to the consolidated financial statements of the ultimate parent for that period.
(1) This section applies for the purpose of determining whether condition A in section 129(2) is met by a multinational group in an accounting period (“the qualifying period”) where its composition has changed—
(a) in that period, or
(b) during the previous 4 accounting periods (“the testing period”).
(2) Reference in subsection (1) to a change in the composition of a multinational group includes its formation as a result of the acquisition by one entity of ownership interests in another.
(3) Where a member of the multinational group was not a member of any consolidated group in one or more of the accounting periods in the testing period—
(a) its revenues for those accounting periods are to be determined by reference to its financial statements or any consolidated financial statements in which its revenue is included (and, if necessary, apportioned on a just and reasonable basis to those accounting periods), and
(b) those revenues are to be treated as forming part of the revenues of the multinational group in those periods (whether or not the group existed in those periods).
(4) Where a multinational group is the result of a merger of two or more consolidated groups in the qualifying period or the testing period, for each accounting period of those periods in which they were separate groups, add together the revenues of each consolidated group for that period (determined by reference to the consolidated financial statements of the ultimate parent of each group and if necessary, apportioned on a just and reasonable basis to the accounting period of the merged group) to determine whether the threshold in section 129(4) is met for that period.
(5) For the purposes of this section “merger” means any arrangement that results in all, or substantially all, of the members of two or more consolidated groups becoming members of a single consolidated group.
131 Whether de-merged groups meet the revenue threshold
(1) Where a multinational group is the result of a qualifying de-merger (“a de-merged group”), section 129 has effect in relation to that group for its first accounting period that ends after the de-merger, and in the 3 accounting periods that follow it as if for subsection (2) there were substituted—
(2) A de-merged group meets condition A ...—
(a) in its first accounting period that ends after the de-merger, if its members have revenue for that period that exceeds the threshold set out in section 129(4), and
(b) in any of the second to fourth accounting periods ending after the de-merger, if its members have revenue that exceeds the threshold set out in that section in any two of the following periods—
(i) that period;
(ii) any of the accounting periods that precede that period and end after the de-merger.
(2) In this section “qualifying de-merger” means the separation of members of a relevant multinational group into two or more consolidated groups in an accounting period of the relevant multinational group, such that those members cease to all be consolidated by the same ultimate parent.
(3) A multinational group is relevant in an accounting period if—
(a) it meets condition A in section 129(2) for that period (revenue threshold exceeded in at least 2 of previous 4 accounting periods), and
(b) Pillar Two rules apply to any member of the group for that period , or would do ignoring any transitional safe harbour election.
(1) The effective tax rate of the standard members of a multinational group in a territory for an accounting period is determined as follows—
Step 1
Determine, in accordance with Chapter 4, the adjusted profits for that period of each standard member of that group in that territory.
Step 2
Subtract the sum of the losses of those members of the group that made a loss in that period from the sum of the profits of those members of the group that made a profit in that period.
Step 3
If the result of Step 2 is nil or less, the effective tax rate is to be treated as 15%. Otherwise, proceed to Step 4.
Step 4
Determine the combined covered tax balance for the standard members of the group in that territory (which may be negative).
Step 5
If that balance is nil the effective tax rate is 0%. Otherwise, proceed to Step 6.
Step 6
Divide the combined covered tax balance by the result of Step 2.
Step 7
Except where Step 3 or 5 applies, the effective tax rate of the standard members of that group is X% where X (which will be negative if the combined covered tax balance is negative) is the result of Step 6 multiplied by 100 and rounded to the nearest fourth decimal place (if it would otherwise have more than four).
(2) The combined covered tax balance for standard members of a multinational group in a territory is—
(a) where those members only have positive covered tax balances (see Chapter 5), the sum of those balances,
(b) where those members only have negative covered tax balances (see that Chapter), the sum of those balances expressed as a negative number, or
(c) where those members have a mixture of positive covered tax balances and negative covered tax balances, the amount (which may be positive or negative) given by subtracting the sum of those negative covered tax balances from the sum of those positive covered tax balances.
Section 174 contains provision about the determination of covered tax balances of members of multinational groups.
(3) For the purposes of this Part—
(a) a member of a multinational group is a “standard member” if it is not—
(i) an investment entity, or
(ii) a minority owned member, and
(b) a stateless member of a multinational group is to be treated as being the sole member of the group located in a nominal territory.
133 Adjusted profits of a member of a multinational group
(1) For the purposes of this Part, references to the adjusted profits of a member of a multinational group are to the underlying profits of that member adjusted in accordance with this Chapter and (to the extent applicable) Chapter 8.
(2) Sections 134 to 137 set out how to determine the underlying profits.
(3) Sections 138 to 158 set out various adjustments that may need to be made to those profits.
(4) Sections 159 and 160 set out adjustments to be made in relation to members that are permanent establishments.
(5) Sections 161 to 164 make provision for elections for certain matters to be calculated in an alternative manner.
(6) Sections 167 to 171 set out adjustments in relation to transparent and hybrid entities and entities subject to a “qualifying dividend regime”.
(7) Other provisions of this Part may require further adjustments of underlying profits, including provision in—
(a) Chapter 9 (investment entities), and
(b) Schedule 16 (transitional provision).
134 Underlying profits as determined for statements of ultimate parent
(1) The normal rule is that the underlying profits of a member of a multinational group, other than a member that is a permanent establishment, are the member’s profits as they would be determined for that member in preparing consolidated financial statements for the ultimate parent.
(2) But those profits may instead be determined on the basis of an alternative accounting standard, and information in the separate financial accounts of the member, if all of the conditions in subsection (3) are met.
(3) Those conditions are that—
(a) it is not reasonably practicable to determine those profits on the basis of the accounting standard used in the preparation of the consolidated financial statements of the ultimate parent,
(b) the alternative accounting standard is an acceptable accounting standard or an authorised accounting standard,
(c) the alternative accounting standard is that used for the financial accounts of the member, and
(d) the information in those accounts is reliable.
(4) Where an alternative accounting standard is used and an amount relevant to the underlying profits of a member of a multinational group is recorded in a currency other than the currency used for the consolidated financial statements of the ultimate parent, that amount is to be converted to that currency for the purposes of this Part.
(5) Subsection (6) applies where the application of a particular policy of the alternative accounting standard in the determination of the profits of the member results in a significant accounting standard difference that would not arise if the accounting standard of the ultimate parent had been applied.
(6) The underlying profits are to be adjusted to eliminate that difference (as if the accounting standard of the ultimate parent had been applied).
(7) Information in the financial accounts of the member is “reliable” if an auditor applying the generally accepted auditing standards of a relevant territory would reasonably conclude the member has in place such processes relating to their preparation as are likely to make the information in the financial accounts a fair and accurate description of the income, expenses, assets and liabilities of that member.
(8) For the purposes of subsection (7), the following are relevant territories—
(a) the territory in which the member is located;
(b) the territory in which the ultimate parent is located;
(c) if the member is a flow-through entity (see section 168(2)) that is a stateless entity, the territory in which it was created.
(9) For the purposes of this section, reference to a “significant accounting standard difference” is to a difference of more than 1 million euros between the treatment of an amount in the financial accounts of a member of a multinational group and the consolidated financial statements of the ultimate parent that is not eliminated over time.
135 Underlying profits of permanent establishments
(1) The underlying profits of a member of a multinational group that is a permanent establishment are the member’s profits—
(a) if the member has separate financial accounts prepared in accordance with acceptable accounting standards, as reflected in those accounts, and
(b) if not, as reflected in the underlying profits accounts of the main entity, attributed between the permanent establishment and the main entity on the same principles as those set out in section 159(1), (2) or (3) (as the case may be).
(2) If the member is a permanent establishment falling within paragraph (d) of section 232(2) (income of permanent establishment exempt from tax in territory of main entity) the member’s underlying profits are determined only by reference to its relevant income and relevant expenses.
(3) For the purposes of subsection (2)—
(a) the relevant income of the member is the income of the member that is exempted from tax in the territory where the main entity is located that is attributable to operations carried out outside the territory the main entity is located in, and
(b) the relevant expenses of the member are such of its expenses as are attributable to those operations and are not deducted for tax purposes in the territory of the main entity.
(4) Profits (as determined in accordance with this Part) of a permanent establishment are not to be taken into account in determining the adjusted profits of the main entity, and vice versa.
(5) But subsection (4)—
(a) does not apply to profits of a permanent establishment that are excluded from its profits as a result of an adjustment under section 159, and
(b) is subject to section 160 (attribution of losses between permanent establishment and main entity).
In this Part, reference to the “underlying profits accounts” of a member of a multinational group is to the statements or accounts (which may in some circumstances be hypothetical) that are the basis of the determination of the member’s underlying profits for the purposes of this Part.
137 No amounts outside of profit and loss account to be included
Except as required by any other provision of this Part, amounts that are recognised outside the profit and loss account in the underlying profits accounts of a member of a multinational group are not to be reflected in the underlying profits of that member.
(1) Where any provision of this Part requires the substitution of a value recorded in the underlying profits accounts of a member of a multinational group for an accounting period, the substituted value—
(a) is to be used for all purposes of this Part instead of the value recorded in the accounts (for example, where the carrying value of an asset has been substituted and the value of that asset is relevant to the member’s deferred tax expense, that substituted value is to be used in connection with determining that expense), and
(b) is to be updated (for example, in making adjustments for depreciation for subsequent accounting periods),
in each case, in accordance with the accounting standard used in determining the underlying profits of the member.
(2) But where the value in question is the value of an asset, no adjustments for impairment are to be made to it.
(3) Where the impaired value of an asset recorded in the underlying profits accounts for any accounting period is less than the substituted value of the asset for that period, use the value from the underlying profits accounts instead for that period and all subsequent periods (and subsection (2) does not apply in relation to that value).
(1) The underlying profits of a member of a multinational group for an accounting period are to be adjusted by adding back any debit, and excluding any credit, for tax expense amounts reflected in ... those profits.
(2) In this Part “tax expense amount” means an amount of tax expense (including a deferred tax expense) in respect of—
(a) a covered tax (whether or not the income to which the tax relates are excluded from adjusted profits for the purposes of this Part);
(b) multinational top-up tax, or any tax equivalent to multinational top-up tax;
(c) a qualifying domestic top-up tax (see section 256);
(d) a qualifying undertaxed profits tax (see section 257);
(e) taxes accrued by an insurance company in respect of returns to policyholders to the extent that section 152(2) applies in relation to those taxes;
(f) a disqualified refundable imputation tax (see section 253).
139 Profits adjusted to be profits before consolidation adjustments to eliminate intragroup transactions
(1) The underlying profits of a member of a multinational group are to be adjusted so that they include income, expenses, gains and losses arising from transactions between that member and other members of that group.
(2) Subsection (1) is subject to—
(a) section 137 (amounts outside profit and loss excluded), and
(b) section 164 (where an election is made under that section to exclude profits from intra-group transactions).
140 Profits adjusted to be profits before certain purchase accounting adjustments
(1) The underlying profits of a member of a multinational group for an accounting period are to be adjusted so that they do not reflect relevant share acquisition adjustments.
(2) “Relevant share acquisition adjustment” means a purchase accounting adjustment to the consolidated financial statements of an ultimate parent of a multinational group arising as a result of an entity becoming a member of the group as a result of the acquisition of ownership interests in the entity by an existing member of the group.
(3) This section does not apply to a relevant share acquisition adjustment resulting from an acquisition of ownership interests before 1 December 2021 if the members of the group do not have sufficient records to identify the adjustment made with reasonable accuracy.
(1) The underlying profits of a member of a multinational group are to be adjusted so as to exclude any excluded dividends received or accrued by that member.
(2) “Excluded dividends” means—
(a) a dividend or other distribution arising as a result of a qualifying interest in a flow-through entity (see section 168), or
(b) any other dividend or other distribution arising as a result of a qualifying interest in an entity, other than a dividend or other distribution falling within subsection (3).
(3) The following fall within this subsection—
(a) a dividend or other distribution arising as a result of a qualifying interest that is a short-term portfolio holding;
(b) a dividend or other distribution arising as a result of a qualifying interest in an investment entity that is subject to an election under section 214 (taxable distribution method election);
(c) a dividend or other distribution made by a member of a multinational group if—
(i) its recipient is a member of the same group, and
(ii) payments in respect of the distribution (whether or not the distribution was accounted for as a distribution at the time of payment) are treated as an expense of the member that made it for the purposes of determining the member’s underlying profits, or
(d) any other dividend or other distribution to the extent it reflects debt rather than a qualifying interest.
(4) For the purposes of subsection (2) a qualifying interest in an entity held by a member of a multinational group is a portfolio holding if, on the vesting date of the distribution, the members of that group do not, between them, have qualifying interests that entitle them to 10% or more of the entity’s—
(a) profits,
(b) capital,
(c) reserves, and
(d) voting rights.
(5) A portfolio holding held by a member of a multinational group is a short-term portfolio holding if it was held for less than 1 year before the vesting date of the distribution.
(6) The vesting date of a distribution is the earlier of—
(a) the day on which it is made, and
(b) the day on which the person to whom it arises is entitled to have it made.
(7) The filing member of a multinational group may elect that all portfolio holdings held by a member of the group specified in the election are to be treated for the purposes of this section as short-term portfolio holdings.
(8) Paragraph 1 of Schedule 15 (long term elections) applies to an election under subsection (7).
(9) In this section, and in section 142, “qualifying interest” in an entity means—
(a) a direct ownership interest in it, ...
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) The underlying profits of a member of a multinational group are to be adjusted so as to exclude any excluded equity gain or loss.
(2) “Excluded equity gain or loss” means any gain, profit or loss arising from—
(a) gains and losses from changes in fair value of a qualifying interest or the impairment of such an interest, other than an interest to which subsection (3) applies,
(b) profit or loss in respect of a qualifying interest included in underlying profits under the equity method of accounting, ... or
(c) gains and losses from a disposition of a qualifying interest, other than an interest to which subsection (3) applies.
(3) This subsection applies to a qualifying interest in an entity if the members of the multinational group do not, at the relevant time, have qualifying interests between them that entitle them to 10% or more of that entity’s—
(a) profits,
(b) capital,
(c) reserves, and
(d) voting rights.
(4) The “relevant time” means—
(a) for the purposes of testing whether subsection (3) applies to an interest for the purposes of subsection (2)(a) or (b), the end of the accounting period in which the gain, profit or loss arose, and
(b) for the purposes of testing whether subsection (3) applies to an interest for the purpose of subsection (2)(c), immediately before the disposition.
(5) See also section 165 which provides for an election to treat certain gains or losses as not being excluded equity gains or losses.
(1) The underlying profits of a member of a multinational group are to be adjusted so as to include any relevant revaluation method gain or loss.
(2) “Relevant revaluation method gain or loss” means a gain or loss, before making any adjustment to reflect tax expense amounts, arising as a result of the use of an accounting method or practice that—
(a) periodically adjusts the carrying value of the member’s property, plant and equipment to its fair value,
(b) records the changes in value in other comprehensive income, and
(c) does not subsequently report the gains or losses through the profit and loss account.
(3) In this Part—
“other comprehensive income”, in relation to a member of a multinational group, means items of income and expense that are recognised, in the underlying profits accounts, outside the profit and loss account;
“property, plant and equipment” has the meaning given, for the time being, by International Accounting Standard 16.
144 Adjustments for asymmetric foreign currency income and losses
(1) This section only applies in relation to a member of a multinational group where its accounting currency and its tax currency are different.
(2) Where—
(a) the member has a gain or a loss as a result of fluctuations in the exchange rate between its accounting currency and its tax currency, and
(b) the gain or loss is reflected differently in its taxable income and in the determination of its underlying profits (including where it is not reflected at all in one of those),
the member’s underlying profits are to be adjusted so that the gain or loss is reflected in those profits on the same basis it is reflected in its taxable income.
(3) Where—
(a) the member has a gain or a loss as a result of fluctuations in the exchange rate between its accounting currency and a third currency,
(b) the gain or loss is reflected in its underlying profits, and
(c) the gain or loss is not reflected, or is reflected to a different extent, in its taxable income,
the member’s underlying profits are to be adjusted to exclude that gain or loss.
(4) Where—
(a) the member has a gain or a loss as a result of fluctuations in the exchange rate between its tax currency and a third currency, and
(b) the gain or loss is not reflected, or is reflected to a different extent, in its underlying profits,
the member’s underlying profits are to be adjusted so that the gain or loss is fully reflected in those profits (whether or not it is reflected in its taxable income).
(5) In this Part—
“accounting currency” means the currency of the main economic environment in which a member of a multinational group operates;
“tax currency” means the currency in which the profits of that member are determined for the purposes of determining its liability to covered taxes in the territory in which it is located;
“third currency” means any currency which is neither the accounting currency nor the tax currency of the member;
“taxable income” means income subject to, and determined for the purposes of, covered taxes.
145 Exclusion of expenses for illegal payments, fines and penalties
(1) Where the underlying profits of a member of a multinational group reflects—
(a) expenses accrued for illegal payments (for example, bribes or kickbacks), or
(b) expenses accrued for fines or penalties of 50,000 euros or more,
those profits are to be adjusted to exclude those expenses.
(2) For the purposes of subsection (1)(a), a payment is illegal if the making of that payment is, or forms part of conduct which is, an offence under the law of—
(a) the United Kingdom,
(b) the territory of the member, or
(c) the territory of the ultimate parent.
(3) For the purposes of subsection (1)(b), where more than one fine or penalty is accrued in respect of the same conduct, or for continuing conduct, those fines or penalties are to be aggregated.
146 Adjustment for changes in accounting policies and prior period errors
Where there has been a change to the net assets and liabilities of a member of a multinational group at the start of an accounting period, the underlying profits of that member for that period are to be adjusted to include the amount of that change if the change is attributable to—
(a) a change in accounting policy that affects income or expenses included in determining the member’s adjusted profits, or
(b) a correction of an error reflected in the determination, for the purposes of this Part, of the adjusted profits of the member for a previous accounting period, except to the extent the error results in a recalculation under section 217(5) (post filing adjustments of covered taxes).
(1) This section applies in an accounting period where a member of a multinational group—
(a) has made contributions to a pension fund in the period,
(b) has received amounts from the pension fund in the period, or
(c) otherwise has amounts of income or expense relating to the pension fund reflected in its underlying profits.
(2) Take the amount of income or expense (expressed as a negative number where expense) that has arisen directly in respect of the fund as reflected in the member’s underlying profits and—
(a) add the sum of contributions made to the fund by the member in the period, and
(b) subtract any amount received by the member from the fund in the period.
(3) If the result of subsection (2)—
(a) is more than nil, reduce the underlying profits by that result, or
(b) is less than nil, increase the underlying profits by that result (as expressed a positive number).
(1) The underlying profits of a member of a multinational group, and the covered tax balance of that member (see Chapter 5), are to be adjusted (if necessary) to secure that—
(a) qualifying refundable tax credits are accounted for as income rather than as tax expense,
(b) tax credits that are marketable transferable tax credits in relation to the member are accounted for as income rather than as tax expense, and
(c) other tax credits are accounted for as tax expense rather than as income.
(2) Section 148 sets out when tax credits are qualifying refundable tax credits.
(3) Section 148A sets out the meaning of “transferable tax credit” and “marketable transferable tax credit”.
(4) Sections 148B and 148C set out rules about the value of marketable transferable tax credits.
(5) Sections 176A to 176C (in Chapter 5) set out rules about the value of tax credits that are not marketable transferable tax credits but which are transferable or were transferred (and which as a result of subsection (1)(c) are generally to be accounted for as tax expense).
(6) See also sections 176D to 176F which contain special rules for tax credits received in under a tax equity partnership arrangement.
(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) A refundable tax credit is “qualifying” to the extent that, under the law of the territory in which it is given, it entitles a person to receive (by way of payment or discharge of liability) the amount of the refundable tax credit within 4 years of meeting the conditions for receiving it.
(3) But a refundable tax credit is never qualifying if it is creditable or refundable pursuant to a qualified refundable imputation tax or a disqualified refundable imputation tax (see section 253).
(4) In this Part “refundable tax credit” means a tax credit which—
(a) after any liability to covered taxes has been reduced or discharged by it, or
(b) in the absence of any ... liability to covered taxes,
is payable in cash or cash equivalents (which for these purposes includes by way of discharge against a liability to a tax which is not a covered tax).
(1) A tax credit is a transferable tax credit in relation to a member of a multinational group if—
(a) the member is—
(i) the person to whom the credit was originally granted (“the originator”), or
(ii) a person (“a purchaser”) who has acquired the credit (whether from the originator or anyone else), and
(b) the transferability condition is met in relation to the member.
(2) A transferable tax credit is a marketable transferable tax credit in relation to a member of a multinational group if—
(a) it is a transferable tax credit, and
(b) the marketable condition is met in relation to the member.
(3) Those conditions are met differently depending on whether the member is the originator or a purchaser.
(4) The transferability condition is met—
(a) in relation to the originator if, under the law of the territory in which the credit was granted, credits of that type may be transferred to a person or entity that is not connected with originator before the end of 15 months after the end of the accounting period in which the credit is granted, and
(b) in relation to a purchaser if, under the law of that territory, credits of that type may be transferred to a person or entity that is not connected with the purchaser—
(i) under the same or similar conditions as would apply to the originator, and
(ii) before the end of the accounting period in which it was transferred to the purchaser.
(5) The marketable condition is met—
(a) in relation to the originator, if—
(i) the credit is transferred to a person or entity that is not connected with the originator in the period beginning with the day on which the credit was granted and ending 15 months after the end of the accounting period in which the credit was granted at a price equal to or in excess of 80% of its net present value, or
(ii) similar credits are traded between persons or entities that are not connected to each other in that period, and are typically traded at a price equal to or in excess of 80% of their net present value, and
(b) in relation to a purchaser, if the purchaser acquired the credit from a person or entity that is not connected to the purchaser at a price equal to or in excess of 80% of its net present value.
(6) Subsections (7) and (8) apply for the purposes of determining the net present value of a tax credit.
(7) In making that determination, assume that the entity that holds it will be able to use it in the accounting periods in which it may be used.
(8) The discount rate to be used in making that determination is to be determined by reference to the return on debt instruments that are issued by the government of the territory in which the credit was granted—
(a) that have—
(i) the same, or a similar, maturity to the period over which the credit is to be used, or
(ii) in a case in which the credit is to be used over a period exceeding 5 years, a maturity of 5 years, and
(b) that are issued—
(i) in relation to a credit that has been transferred, in the accounting period in which the credit was transferred, or
(ii) in relation to a credit held that has not been transferred, in the accounting period in which it was granted.
(9) References in subsections (6) and (8) to an accounting period are—
(a) in relation to determining net present value in connection with determining whether the marketable condition is met by the originator, an accounting period of the originator, and
(b) in relation to determining net present value in connection with determining whether the marketable condition is met by a purchaser, an accounting period of the purchaser.
(10) Where a transferable tax credit is also a qualifying refundable tax credit, it is to be treated as not being a transferable tax credit for the purposes of this Part.
148B Value of marketable transferable tax credits: originator
(1) The underlying profits of a member of a multinational group that is the originator in relation to a marketable transferable tax credit are to be adjusted to secure that the value of marketable transferable tax credits it holds, and has held, as originator are reflected as follows.
(2) Where the credit is not transferred before the end of 15 months after the end of the accounting period in which it was granted, the full value of the credit is to be recognised as income.
(3) Where the credit is subsequently transferred for consideration which is less than the value of the credit, the difference between the value of the credit and the consideration received for its transfer is to be recognised as a loss in the accounting period in which it is transferred.
(4) Where the credit is transferred before the end of 15 months after the end of the accounting period in which the credit is granted, the consideration for the transfer (rather than the value of the credit) is to be recognised as income.
(5) Where the credit has not been transferred, and was not fully used, before its expiry, the value of so much of the credit as has not been used is to be reflected as a loss in the accounting period in which the credit expired.
148C Value of marketable transferable tax credits: purchaser
(1) The underlying profits of a member of a multinational group that is the purchaser in relation to a marketable transferable tax credit are to be adjusted to secure that the value of marketable transferable tax credits it holds, and has held, as purchaser are reflected as follows.
(2) On using an amount of the credit in an accounting period, the amount given by subsection (3) is to be recognised as income.
(3) That amount is the amount given by multiplying—
(a) the amount used divided by the full value of the credit, by
(b) the amount given by subtracting the purchase price of the credit from the full value of the credit.
(4) On transferring the credit, the amount in subsection (5) is to be reflected in the underlying profits for the accounting period in which the transfer occurred—
(a) if positive, as a gain, or
(b) if negative, as a loss.
(5) That amount is the amount given by subtracting—
(a) the sum of—
(i) the purchase price of the credit, and
(ii) any amounts recognised as income in accordance with subsection (2) (whether in that accounting period or a previous accounting period), from
(b) the sum of—
(i) the amount of the credit that has been used, and
(ii) the consideration for the transfer.
(6) Where the credit has not been transferred, and was not fully used, before its expiry, the amount in subsection (7) is to be reflected as a loss in the accounting period in which the credit expired.
(7) That amount is the amount given by subtracting—
(a) the amount of the credit that was used, from
(b) the sum of the purchase price of the credit and any amounts recognised in accordance with subsection (2).
149 Arm’s length requirement for certain transactions
(1) Subsection (6) applies to a member of a multinational group if any of Conditions A to D are met.
(2) Condition A is that—
(a) a debit is recorded in the underlying profits accounts of the member that arises from a transaction (“the relevant transaction”) comprising a transfer of an asset between the member and another member of that group,
(b) both members are located in the same territory, and
(c) the relevant transaction is not recorded on an arm’s length basis.
(3) Condition B is that—
(a) the member is party to a transaction (“the relevant transaction”) with another member of that group,
(b) both members are located in the same territory,
(c) one of the members is a minority owned member and the other is not, and
(d) the relevant transaction is not recorded in the member’s underlying profits accounts on an arm’s length basis.
(4) Condition C is that—
(a) the member is party to a transaction (“the relevant transaction”) with another member of that group,
(b) both members are located in the same territory,
(c) one of the members is an investment entity and the other is not, and
(d) the relevant transaction is not recorded in the member’s underlying profits accounts on an arm’s length basis.
(5) Condition D is that—
(a) the member is party to a transaction (“the relevant transaction”) with another member of that group,
(b) both members are located in the same territory, and
(c) the recorded value of the relevant transaction is not the same in each member’s underlying profits accounts.
(6) Where this subsection applies to a member of a multinational group, the underlying profits of both that member and the other member are to be adjusted to secure that the relevant transaction is reflected on an arm’s length basis.
(7) In this Part “arm’s length basis”, in relation to a transaction between members of the same multinational group, means reflecting the conditions of the transaction as would have been obtained had the transaction been conducted between independent enterprises in a comparable transaction under comparable circumstances.
150 Transactions between members of a multinational group: differences with accounting for tax
(1) This section applies if—
(a) a transaction between two members of a multinational group located in different territories is not recorded in the same amount, or is not recorded on an arm’s length basis (or is not recorded at all), in the underlying profits accounts of both of those members, and
(b) there is a permanent difference in respect of the transaction in relation to one or both of those members as a result of adjustments to the taxable income of the member made in connection with transfer pricing.
(2) Subsection (3) applies if—
(a) for each member there is a permanent difference in respect of the transaction which arises as a result of adjustments made in connection with transfer pricing, and
(b) the permanent difference for each member corresponds to the permanent difference for the other.
(3) Where this subsection applies, the underlying profits of each of the members are to be adjusted so that the amount of the transaction reflects the amount reflected in the member’s taxable income.
(4) Subsection (5) applies if—
(a) one of the members (“A”) is a high tax member,
(b) there is a permanent difference for A in respect of the transaction which arises as a result of adjustments made in connection with transfer pricing, and
(c) there is no permanent difference for the other member (“B”) in respect of the transaction arising as a result of adjustments made in connection with transfer pricing.
(5) Where this subsection applies—
(a) the underlying profits of A are to be adjusted so that the amount of the transaction reflects the amount reflected in the member’s taxable income, and
(b) an adjustment is to be made to the underlying profits of B which corresponds with the amount of the adjustment made to the profits of A.
(6) For the purposes of this section, a member of a multinational group is a high tax member for an accounting period (“the relevant period”) if—
(a) the nominal tax rate that applies to the member is, or exceeds, 15% in the relevant period, and
(b) the effective tax rate of the standard members of that group in the territory in which the member is located is, or exceeds, 15% in either, or both, of the accounting period that immediately preceded the relevant period and the accounting period immediately before that one.
(6A) But—
(a) for the purposes of subsection (6)(b), ignore any accounting period in which there was no standard member of the group in that territory to which the Pillar Two rules applied, and
(b) a standard member of a multinational group is always to be regarded as a high tax member for an accounting period if a transitional safe harbour election applies to it for that period.
(7) In this section reference to a “permanent difference” is to a difference between the treatment of an amount for the purposes of covered taxes and for accounting purposes that is not eliminated over time (and accordingly does not give rise to deferred tax).
150A Instruments held intragroup: issuer’s accounting treatment to prevail
If—
(a) a member of a multinational group (“the holder”) holds an interest (of any description) in another member of the group (“the issuer”), and
(b) the interest is accounted for as equity in the underlying profits accounts of one of the members and as debt in the underlying profits accounts of the other,
the underlying profits of the holder are to be adjusted to what they would be if the interest were accounted for in the holder’s underlying profits accounts in the same way as it is accounted for in the issuer’s.
(1) This section applies to a member of a multinational group for an accounting period where—
(a) it is released from an obligation to pay a debt (however that obligation arises), ...
(aa) that release is reflected in the underlying profits of the member for that period,
(b) at the time of that release, one or more of the circumstances mentioned in paragraphs (a) to (c) of subsection (2) applied to it , and
(c) the filing member of the group elects that this section should apply to the member for that period.
(2) Those circumstances are—
(a) that the member meets an insolvency condition mentioned in paragraphs (a) to (e) of section 322(6) of CTA 2009 (release of debts);
(b) that—
(i) it is reasonable to suppose that within 12 months, ignoring any debts owed to persons and entities that are connected to the member, the member will be unable to meet its debts to persons and entities it is not connected to as they fall due, and
(ii) the member has obtained an independent expert opinion confirming that is the case;
(c) that the member’s liabilities exceed its assets.
(3) Where the circumstance in subsection (2)(a) applies to the member, its underlying profits are to be adjusted to exclude any profits arising as a result of the release of the debt obligation.
(4) Where—
(a) the circumstance in subsection (2)(b) applies to the member,
(b) the circumstance in (2)(a) does not, and
(c) the debt—
(i) is not a debt owed to a person or entity that is connected to the member, or
(ii) the debt is owed to a person or entity that is connected to the member, but the release of the debt obligation can reasonably be regarded as part of arrangements to secure the solvency of the member that involve the release of debt owed to a person that is not connected to the member,
the member’s underlying profits are to be adjusted to exclude any profits arising as a result of the release of the debt obligation.
(5) Subsection (6) applies where—
(a) the circumstance in subsection (2)(c) applies to the member,
(b) neither the circumstance in subsection (2)(a) nor (2)(b) applies to the member, and
(c) the debt is not a debt owed to a person or entity that is connected to the member.
(6) Where this subsection applies, the underlying profits of the member are to be adjusted to exclude the lesser of—
(a) the amount of any profits arising as a result of the release of the debt obligation,
(b) if, as a result of the release of the debt obligation, the member’s assets exceed its liabilities, the amount by which its liabilities exceeded its assets immediately before the release, and
(c) if, in determining the member’s liability to tax, some or all of the profits arising as a result of the release of the debt obligation are offset by local tax attributes, the amount of those profits that are offset.
(6A) For the purposes of subsection (6)(c) “local tax attributes” means any tax attributes (which may include foreign tax credits) of the member that are recognised under the law of the territory in which the member is located (whether or not such tax attributes are excluded from the member’s covered tax balance).
(7) Where more than one debt is released at the same time, the debts released are to be treated as a single aggregate amount for the purpose of assessing whether conditions in this section are met (for example, whether the member’s assets exceed its liabilities at any time).
(8) Paragraph 2 of Schedule 15 (annual elections) applies to an election under subsection (1)(c).
152 Adjustments where life assurance business carried on
(1) This section applies to a member of a multinational group that carries on a life assurance business.
(2) Where amounts charged to the member’s policyholders for taxes payable by the member are reflected in its underlying profits, those profits are to be adjusted to exclude such of those amounts as would (had they not been charged to the policyholders) have been included in the member’s covered tax balance.
(3) Where returns to the member’s policyholders are not reflected in the member’s underlying profits but corresponding increases or decreases in the liability of the member to the policyholders are so reflected, those profits are to be adjusted so as to reflect those returns to the extent they correspond with those increases or decreases in liability.
(4) In this section “life assurance business” means—
(a) a life assurance business within the meaning of section 56 of FA 2012, or
(b) a business regulated as a life assurance business under the law of a territory outside the United Kingdom.
153 Exclusion of certain insurance reserve movement expense
(1) The underlying profits of a member of a multinational group that is an insurance company are to be adjusted so as to exclude any expense resulting from the movement of its insurance reserves where the movement is economically matched by excluded dividends falling within section 141(2)(b) (ignoring the extent to which those dividends also reflect any investment management fees).
(2) The underlying profits of a member of a multinational group that is an insurance company are to be adjusted so as to exclude any expense resulting from the movement of its insurance reserves where the movement is economically matched by an excluded equity gain or loss.