183A Alternative to section 183 where carry forward of credits not permitted
(1) A special foreign tax asset of a member of a multinational group is to be used to increase its covered tax balance in accordance with this section.
(2) Subsection (3) applies where—
(a) the territory in which a member of a multinational group is located requires that domestic losses are offset against relevant foreign income before foreign tax credits can be applied against tax on foreign income,
(b) the territory limits the extent to which foreign tax credits can be applied against tax in a taxable period,
(c) the territory allows foreign tax credits to be used to a greater extent where a domestic loss has been used to offset (in whole or in part) relevant foreign income in a prior period, and
(d) the member has used a domestic loss to offset (in whole or in part) relevant foreign income.
(3) Where this subsection applies, the member has a special foreign tax asset arising in the accounting period in which the loss was used.
(4) The amount of that special foreign tax asset is the amount of the domestic loss used to offset relevant foreign income multiplied by the lesser of—
(a) the nominal rate of tax in the member’s territory for the taxable period in which it was used, and
(b) 15%.
(5) Where a member of a multinational group has a special foreign tax asset that arose in any previous accounting period, the member is to use that amount to increase its covered tax balance.
(6) The amount of the special foreign tax asset that is to be used in an accounting period is the lesser of—
(a) the amount of the asset, and
(b) so much of the amount of foreign tax credits credited against tax in the taxable period corresponding to that accounting period as is capable of being credited only as a result of the prior use of the domestic loss.
Any remainder continues to be a special foreign tax asset (and is available for use in subsequent account periods where subsection (5) applies).
(1) A member of a multinational group has a recaptured deferred tax liability if it has a deferred tax liability, other than an excluded liability, taken into account in its total deferred tax adjustment amount for an accounting period (“the initial period”) that is not reversed before the end of the fifth accounting period after the initial period.
(2) Where a member of a multinational group has a recaptured deferred tax liability—
(a) the amount included in the total deferred tax adjustment amount for the initial period in relation to that recaptured deferred tax liability is to be excluded from its covered tax balance for that period, and
(b) the following are to be accordingly recalculated for the initial period—
(i) the effective tax rate for the member and the other members of that group located in the same territory, and
(ii) the top-up amounts that those members would have.
(3) Section 206 applies to recalculations under subsection (2).
(4) For the purposes of subsection (1) “excluded liability” means a tax expense attributable to changes in associated deferred tax liabilities in respect of—
(a) cost recovery allowances on tangible assets,
(b) the cost of a licence or similar arrangement from the government for the use of immovable property or exploitation of natural resources that entails significant investment in tangible assets,
(c) research and development expenses,
(d) de-commissioning and remediation expenses,
(e) fair value accounting on unrealised net gains,
(f) foreign currency exchange net gains,
(g) insurance reserves and insurance policy deferred acquisition costs,
(h) gains from the sale of tangible property located in the same territory as the member that are reinvested in tangible property in the same territory, or
(i) additional amounts accrued as a result of accounting principle changes with respect to things falling within any of paragraphs (a) to (h).
(5) This section is to be applied in accordance with, and is subject to, the DTL recapture methodology.
(6) The DTL recapture methodology means provisions about the treatment of deferred tax liabilities—
(a) set out in regulations made under section 262(1)(a) and identified in those regulations as the DTL recapture methodology, or
(b) where no such provisions are identified in any such regulations, set out in the DTL recapture guidance.
(7) The “DTL recapture guidance” means the guidance in Chapter 1 of Tax Challenges Arising from the Digitalisation of the Economy – Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two), June 2024 published by the OECD on 17 June 2024.
(8) Where subsection (6)(b) applies, the DTL recapture guidance has effect as DTL recapture methodology with all necessary modifications for that purpose (for example, reference to a Five-Year Election is to be read as an election to which paragraph 1 of Schedule 15 (long term elections) applies).
(9) This Chapter is to have effect with such modifications as are necessary to give effect to the DTL recapture methodology.
185 Inclusion of existing deferred tax assets and liabilities on entry into regime
(1) This section applies to deferred tax assets and deferred tax liabilities of a member of a multinational group as at the beginning of the first accounting period for which Pillar Two rules apply to it that are reflected in its underlying profits accounts (and the adjustments set out in this section apply instead of those set out in section 182(2) to (7)).
(2) Each such asset and liability is to be taken into account in determining the member’s deferred tax expense—
(a) if the nominal tax rate in relation to the asset or liability—
(i) is less than 15% and subsection (3) does not apply, at its nominal tax rate,
(ii) is 15% or more, as if the rate of tax to which the asset or liability related was 15%,
(b) in the case of a deferred tax asset, excluding the impact of a valuation adjustment or accounting recognition adjustment with respect to it.
(3) But where—
(a) the nominal tax rate in relation to the asset is less than 15%, and
(b) the member can demonstrate that a deferred tax asset is attributable to the fact of the member having a loss which would have been taken account of in determining adjusted profits had those profits been determined under this Part,
that asset is to be taken into account in determining the member’s deferred tax expense as if the rate of tax to which the asset related was 15%.
(4) Where a deferred tax asset relates to a tax credit neither subsection (2)(a) nor (3) applies.
(5) If the nominal tax rate that applies on the reversal of such a tax asset exceeds 15%, the amount of the reversal is to be treated as if it were the amount given by multiplying—
(a) the amount given by dividing—
(i) the amount of the deferred tax expense in the underlying profits accounts in respect of that deferred tax asset, by
(ii) the nominal tax rate that applied on the reversal, by
(b) 15%.
(6) Subsection (7) applies to a deferred tax asset of a member of a ... multinational group that arises—
(a) before the commencement of the first accounting period for which Pillar Two rules apply to the member and as a result of a transaction carried out after 30 November 2021, and
(b) in relation to an item that either—
(i) is included in the member’s taxable income but which would not be included in the member’s adjusted profits (had those profits been determined under this Part), or
(ii) is not included in the member’s taxable income but which would be included in the member’s adjusted profits (had those profits been determined under this Part).
(7) A deferred tax asset to which this subsection applies is to be ignored in determining the member’s deferred tax expense.
(7A) Subsection (7D) applies to a deferred tax asset of a member of a multinational group that arises before the commencement of the first accounting period for which Pillar Two rules apply to the member and as a result of the occurrence of either of the following after 30 November 2021—
(a) the making available of a tax credit, or other tax relief, by virtue of the exercise of a discretion in relation to a member of the group by a national, regional or local government or by a governmental entity;
(b) the making (or modifying) of an election or of another choice by a member of the group where the effect of the election or choice is to change the tax treatment of an earlier transaction retrospectively.
(7B) Subsection (7D) also applies to a deferred tax asset or a deferred tax liability of a member of a multinational group that arises—
(a) after 30 November 2021 and before the commencement of the first accounting period for which Pillar Two rules apply to the member,
(b) because of a difference between the value (or base cost) of an asset or liability for the purposes of a corporate income tax and its value for accounting purposes, and
(c) in circumstances where the corporate income tax mentioned in paragraph (b) was introduced on or after 1 December 2021 in a territory that did not previously have a corporate income tax.
(7C) Subsection (7D) also applies to a deferred tax asset of a member of a multinational group that arises before the commencement of the first accounting period for which Pillar Two rules apply to the member if—
(a) where the member is located in a territory which did not have a corporate income tax before 1 December 2021 and in which one is introduced on or after that date, the deferred tax asset is attributable to a loss occurring before the fifth accounting period before the accounting period in which that corporate income tax came into force, or
(b) the deferred tax asset arises in relation to non-economic expenses or losses (within the meaning of the Pillar Two rules) incurred after 30 November 2021.
(7D) A deferred tax asset or deferred tax liability to which this subsection applies is to be ignored in determining the member’s deferred tax expense.
(8) Subsection (9) applies to a deferred tax asset or deferred tax liability of a member of a ... multinational group that arises under a blended CFC regime.
(9) A deferred tax asset or deferred tax liability to which this subsection applies is to be ignored in determining the member’s deferred tax expense.
186 Deferred tax assets recorded at less than minimum rate
(1) This section applies where the value of a deferred tax asset of a member of a multinational group—
(a) is calculated on the basis of a tax rate of less than 15%, and
(b) is attributable to an accounting period in which the member’s adjusted profits were a loss.
(2) But this section only applies in relation to a deferred tax asset of the member falling within subsection (1) if the filing member accounts for all such assets of the member in accordance with this section in an information return submitted to HMRC or a qualifying authority (see paragraph 10(5) of Schedule 14).
(3) Subsection (4) applies where the loss for the accounting period upon which the value of that asset was calculated does not exceed the loss established on determining the member’s adjusted profits for that period.
(4) Where this subsection applies, the asset is to be treated as having the value it would have if the tax rate upon which it was calculated were 15%.
(5) Subsection (6) applies where the loss for the accounting period upon which the value of that asset was calculated exceeds the loss established on determining the member’s adjusted profits for that period.
(6) The relevant part of the asset is to be treated as having the value of a deferred tax asset generated on the loss established on determining the member’s adjusted profits on the basis of a tax rate of 15%.
(7) The “relevant part” of the asset means so much of the asset derived from an amount of loss that does not exceed the loss established on determining the member’s adjusted profits.
(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
187 Election for losses to be treated as special loss deferred tax assets
(1) The filing member of a multinational group may elect that this section applies to all of the standard members of the group in a particular territory (“the relevant territory”).
(2) An election under subsection (1)—
(a) must be made having effect for the first accounting period in which the Pillar Two rules apply to any standard member in the relevant territory,
(b) may not otherwise be made (and accordingly if the election is revoked it cannot be made again), and
(c) may not be made for a territory that has an eligible distribution tax system.
(3) Where this section applies to the standard members of a multinational group for an accounting period—
(a) none of those members has a total deferred tax adjustment amount for that period, and
(b) if the result of Step 2 in section 132(1) in relation to those members is nil or less (those members between them have made a loss), the amount of that result (expressed as a positive number) multiplied by 15% is a special loss deferred tax asset of those members.
(4) Subsection (5) applies where—
(a) this section applies in relation to the standard members of a multinational group in a territory for an accounting period,
(b) the result of Step 2 in section 132(1) in relation to those members is greater than nil, and
(c) those members have one or more special loss deferred tax assets.
(5) Where this subsection applies, the standard members of the group that have made a profit in that accounting period are to use those assets in that period to increase their covered tax balances in accordance with subsections (6) and (7).
(6) The amount of the special loss deferred tax assets that is to be used is the lesser of—
(a) the amount of the assets, and
(b) the result of Step 2 in section 132(1) multiplied by 15%.
Any remainder continues to be a special loss deferred tax asset of the relevant members of the group (and is available for use in subsequent accounting periods in which the election has effect).
(7) Each of the standard members that made a profit in that period is to use the proportion of the amount to be used in accordance with subsection (6) that is equal to the proportion the adjusted profits of the member bears to the total adjusted profits of all of the standard members that made a profit.
188 Further provision about elections under section 187
(1) Paragraph 1 of Schedule 15 (long term elections) applies to an election under section 187.
(2) But that paragraph has effect for the purposes of such an election as if—
(a) sub-paragraph (4) were omitted (so that there is no restriction on revoking the election), and
(b) sub-paragraph (5) were omitted (as an election under this section cannot be made again once revoked).
(1) The filing member of a multinational group may make an election that section 190 (deemed distribution tax) applies to all of the standard members of the group in a particular territory for an accounting period.
(2) An election under subsection (1) may only be made in relation to a territory if that territory has an eligible distribution tax system.
(3) In this Part “eligible distribution tax system” means a system of tax on company profits that—
(a) is generally only payable when a company distributes, or is deemed to distribute, those profits to its members, or when it incurs certain non-business expenses,
(b) is charged at a rate of at least 15%, and
(c) was in force on or before 1 July 2021.
(4) Paragraph 2 of Schedule 15 (annual elections) applies to an election under this section.
(1) Where this section applies to the standard members of a multinational group in a territory for an accounting period, those members have a deemed distribution tax amount for that period.
(2) The deemed distribution tax amount is the lesser of—
(a) the amount that, when added to the result of Step 4 in section 132(1), would result in the effective tax rate of those members for that period being 15%, and
(b) the amount of tax that would have been due in that territory if all of those members had distributed all of their profits of that period.
(3) The combined covered tax balance of those members for that period, as determined under Step 4 in section 132(1), is to be increased by adding that deemed distribution tax amount.
(4) In the following accounting period, those members have a “recapture amount” in respect of the previous accounting period that is (initially) equal to the deemed distribution tax amount for that period.
(5) Those members continue to have a recapture amount in respect of an accounting period until the earlier of—
(a) the end of the fourth accounting period after the period in which the recapture amount first arose, and
(b) the time when the recapture amount has reduced to nil.
(6) Section 191 sets out how recapture amounts reduce.
(7) If the recapture amount in respect of an accounting period has not reduced to nil by the end of the fourth accounting period after that period the following are to be recalculated for the period in which the recapture amount arose, with the amount of the recapture amount remaining subtracted from the combined covered tax balance (after the addition of the deemed distribution tax amount)—
(a) the effective tax rate for those members, and
(b) the top-up amounts that those members would have following that recalculation.
(1) Where standard members of a multinational group in a territory have a recapture amount in an accounting period (“the relevant period”) in respect of a previous accounting period that amount is to be reduced in accordance with subsections (3) to (5).
(2) If those members have more than one recapture amount in the relevant period, those reductions are to be applied first to the recapture amount in respect of the earliest accounting period, then the next earliest and so on.
(3) First, if any of the members have accrued qualifying taxes in the relevant period reduce the recapture amount (but not below nil) by the amount of qualifying taxes accrued by the members in that period that is available.
(4) Then, if the members have a collective loss for the relevant period (and if the recapture amount has not been reduced to nil) reduce the recapture amount (but not below nil) by the amount of that loss that is available multiplied by 15%.
(5) Finally, if the members have a qualifying carried forward loss (and if the recapture amount has not been reduced to nil) reduce the recapture amount (but not below nil) by the amount of the qualifying carried forward loss that is available.
(6) An amount is “available” to the extent it has not been used to reduce another recapture amount (in the case of a qualifying carried forward loss, whether in that period or a previous period).
(7) For the purposes of subsections (3) to (6)—
“qualifying taxes” means taxes accrued in the relevant period on actual or deemed distributions of profits;
members of the group have a “collective loss” for an accounting period if the result of Step 2 in section 132(1) is less than nil, and the amount of that loss is that result expressed as a positive number,
members of the group have a “qualifying carried forward loss” if —
they had a collective loss in a period, and
after making reductions in accordance with subsections (2) to (5) an amount of that collective loss remains available,
and the amount of that qualifying carried forward loss is the amount of the collective loss that remained available.
(8) Any amount of qualifying taxes accrued by a member of the group that is used to reduce a recapture amount is excluded from that member’s covered tax balance.
(1) This section applies where—
(a) in an accounting period (“the relevant period”), a standard member of a multinational group (“D”) in a territory (“the relevant territory”)—
(i) leaves the group,
(ii) transfers all, or substantially all, of its assets to an entity who is not a member of the group or to an individual, or
(iii) transfers all, or substantially all, of its assets to a member of the group that is not located in the relevant territory, and
(b) the standard members (including D) of the group in the relevant territory (“the relevant members”) had, in previous accounting periods, one or more recapture amounts (each a “recapture period”).
(2) Where this section applies, the following are to be recalculated for each recapture period—
(a) the effective tax rate for the relevant members, and
(b) the top-up amounts that those members would have in accordance with that recalculation.
(3) In recalculating that rate and those amounts for each of those periods, deduct the amount of each recapture amount that was outstanding in the period (after any reduction under section 191 in that period) from the combined covered tax balance of those members for the period.
(4) The relevant members have a special additional top-up tax amount under this section for the relevant period that is equal to the sum of the amounts given by—
(a) subtracting the amount of top-up amounts those members had for each recapture period from the sum of the top-up amounts those members would have for that period as recalculated under subsection (2)(b), and
(b) multiplying the result of paragraph (a) for each recapture period by the disposition recapture ratio for that period.
(5) Subject to subsections (6) and (7), the disposition recapture ratio for an accounting period is the amount given by dividing—
(a) the adjusted profits of D in that period, by
(b) the result of Step 2 in section 132(1) for the relevant members for that period.
(6) If either of the amounts described in paragraph (a) or (b) of subsection (5) is nil or less, the disposition recapture ratio is nil.
(7) If (ignoring this subsection) the disposition recapture ratio would be greater than 1, it is to be treated as 1.
(8) Sections 206 and 207 include further provision about special additional top-up tax amounts under this section.
(9) Each of the amounts mentioned in subsection (10) for each affected period is to be treated, for the purposes of this Part, as the amount given by multiplying—
(a) that amount, by
(b) the amount given by subtracting the disposition recapture ratio for that period from 1.
(10) Those amounts are—
(a) the result of Step 2 in section 132(1) for those members for that period;
(b) the combined covered tax balance of the standard members of the group in the relevant territory;
(c) any recapture amount those members have in that affected period;
(d) the substance based income exclusion for that period for that territory.
(11) An accounting period is an affected period if it is—
(a) a recapture period, or
(b) the relevant period and the standard members of the group in the territory have one or more recapture amounts in that period.
Take the following steps to determine if a standard member of a multinational group (“the member in question”) has a top-up amount for an accounting period and, if it does, the extent of it—
Step 1
Determine, under section 194, the total top-up amount for the accounting period for the territory the member in question is located in.
Step 2
If the total top-up amount for that territory is nil, the member in question does not have a top-up amount. Otherwise, proceed to Step 3.
Step 3
Determine the adjusted profits of the member in question for the period (in accordance with Chapter 4).
Step 4
If the member has not made a profit for the period (as determined by reference to its adjusted profits), the member in question does not have a top-up amount. Otherwise, proceed to Step 5.
Step 5
If there are no other standard members of the multinational group located in the same territory as the member in question, the member’s top-up amount is equal to the total top-up amount for that territory for the period. Otherwise, proceed to Step 6.
Step 6
Determine (in accordance with Chapter 4) the adjusted profits for the period of all of the other standard members of the group that are located in same territory as the member in question.
Step 7
Add together the adjusted profits of all standard members of the group in that territory that have profits (including those of the member in question).
Step 8
Divide the member in question’s adjusted profits by the result of Step 7.
Step 9
The member’s top-up amount is the result of multiplying the total top-up amount for the territory by the result of Step 8.
(1) Take the following steps to determine the total top-up amount for an accounting period for a territory—
Step 1
Subtract the effective tax rate of the standard members of the group in that territory for that period (as determined in accordance with section 132) from 15%.
Step 2
If the result of Step 1 is nil or less, the total top-up amount for that territory is nil. Otherwise, proceed to Step 3.
Step 3
Subtract the sum of the losses of those members of the group that made a loss for the period (as determined by reference to their adjusted profits) from the sum of the profits of those members of the group that made a profit in that period (as determined by reference to their adjusted profits).
Step 4
Subtract the substance based income exclusion for that period for that territory (if any) from the result of Step 3.
Step 5
If the result of Step 4 is nil or less, the total top-up amount for that territory is nil. Otherwise, proceed to Step 6.
Step 6
Multiply the result of Step 1 (which will be a percentage) by the result of Step 4.
(2) But where those members have a QDT credit for that territory for the accounting period, the total top-up amount is to be reduced in accordance with subsections (4) to (7).
(3) For the purposes of this Part, standard members of a multinational group in a territory have a “QDT credit” for a territory for an accounting period if qualifying domestic top-up tax (see sections 256 and 256A) is accrued by one or more of those members in that territory for that period.
(4) Where—
(a) the standard members do not have a collective additional amount under section 206 for the period, and
(b) the result of Step 6 in subsection (1) is equal to or greater than the sum of amounts of qualifying domestic top-up tax accrued by those members in that period,
the total top-up amount is to be reduced by the sum of those amounts.
(5) Where—
(a) the standard members do not have a collective additional amount under section 206 for the period, and
(b) the result of Step 6 in subsection (1) is less than the sum of amounts of qualifying domestic top-up tax accrued by those members in the period,
the total top-up amount is to be reduced to nil.
(6) Where—
(a) the standard members have a collective additional amount under section 206 for the period, and
(b) the sum of the result of Step 6 in subsection (1) and that collective additional amount is less than the sum of amounts of qualifying domestic top-up tax accrued by those members in the period,
the total top-up amount is to be reduced to nil.
(7) Where—
(a) the standard members have a collective additional amount under section 206, and
(b) the sum of the result of Step 6 in subsection (1) and that collective additional amount is equal to or greater than the sum of amounts of qualifying domestic top-up tax accrued by those members in the period,
the total top-up amount is to be reduced by the amount given by multiplying the sum of those amounts of qualifying domestic top-up tax by the amount given by dividing the result of Step 6 in subsection (1) by the sum of the result of that step and that collective additional amount.
(1) The substance based income exclusion for a period for a territory is calculated by taking the following steps—
Step 1
Determine the payroll carve-out amount for that period for each standard member of the group in that territory.
Step 2
Determine the tangible asset carve-out amount for that period for each standard member of the group in that territory.
Step 3
Add together the amounts determined at steps 1 and 2.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) The payroll carve-out amount for a member is 5% of the eligible payroll costs incurred by the member in the period.
(5) The tangible asset carve-out amount for a member is 5% of the eligible tangible asset amount of the member in the period.
(6) Section 196 sets out how to calculate the eligible payroll costs of a member.
(7) Section 197 sets out how to calculate the eligible tangible asset amount of a member.
(7A) Section 197A sets out the treatment of operating leases.
(8) Section 198 supplements the rules in sections 196 and 197 in relation to a member that is a permanent establishment.
(9) Section 198ZA supplements the rules in sections 196 and 197 in relation to a member that is a flow-through entity.
(1) The eligible payroll costs of a member for a period are all costs incurred by the member in the period in connection with the employment of an employee of that member, provided that—
(a) the employee is an individual,
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) at least some of the work is carried out in the territory in which the member is located, ...
(d) the costs are not excluded costs , and
(e) the filing member chooses to include those costs in calculating the substance based income exclusion for the period.
(1A) But where—
(a) an employee carries out the work in the period both in the territory in which the member is located and outside that territory, and
(b) the proportion of the time spent carrying out the work in that territory in the period is 50% or less,
the payroll costs in respect of the employee are to be multiplied by that proportion to determine how much of those costs are eligible payroll costs.
(2) The costs may include in particular—
(a) salaries, wages and other expenditures that provide a direct and personal benefit to the employee,
(b) payroll and other employment taxes payable by the member, and
(c) social security contributions payable by the member.
(3) In this section “employee” means—
(a) a person regarded as an employee under the law of the territory in which the member is located, and
(b) any other person while they are participating in the ordinary operating activities of the member (including on a part-time basis),
and “employment” is to be construed accordingly.
(4) “Excluded costs” are the following—
(a) costs taken into account in determining the underlying profits of a permanent establishment of the member;
(b) costs taken into account in a carrying value used to calculate the eligible tangible asset amount (see section 197);
(c) costs that are core international shipping costs (see section 157);
(d) costs that are ancillary international shipping costs (see section 158), subject to subsections (5) and (6).
(5) Where the member has an ancillary international shipping profit cap adjustment of more than nil for the period, only the eligible proportion of costs that are ancillary international shipping costs are excluded costs.
(6) The eligible proportion is the proportion given by dividing—
(a) the member’s ancillary international shipping profits for the period, by
(b) the amount given by subtracting the member’s ancillary international shipping costs from the member’s ancillary international shipping revenue for the period.
(7) A member of a multinational group that is a flow-through entity that is a responsible member of the group but which is not the ultimate parent is to be regarded as having nil eligible payroll costs (subject to the application of section 198ZA).
(1) To determine the eligible tangible asset amount of a member of a multinational group for an accounting period—
(a) add together—
(i) the sum of the recorded carrying values of each eligible tangible asset held by the member at the start of the period, and
(ii) the sum of the recorded carrying values of each eligible tangible asset held by the member at the end of the period, and
(b) divide the result of paragraph (a) by 2.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) “Recorded” means values recorded for the purposes of preparing the consolidated financial statements of the ultimate parent (and not values as substituted as a result of any other provision of this Part).
(4) For the purposes of this section “carrying value” means the carrying value of the asset including—
(a) accumulated depreciation, amortisation or depletion,
(b) amounts attributable to the capitalisation of eligible payroll costs and costs that would be eligible payroll costs were they not excluded costs under section 196(4), ...
(c) amounts attributable to any purchase accounting adjustment relating to the asset,
(d) any impairment loss, and
(e) so much of the reversal of a previous impairment loss as does not cause the carrying value to exceed the value it would have been had the impairment loss not been recognised,
but not including any positive difference between the value of an asset recorded from time to time and the value of an asset when it was acquired by the member, where that difference is solely attributable to a revaluation.
(5) An asset is an eligible tangible asset if ...—
(a) it is of a type referred to in subsection (6), ...
(b) it is not an excluded asset and,
(c) the filing member chooses to include the asset in calculating the substance based income exclusion for the period.
(6) The types of asset are—
(a) property, plant or equipment located in the same territory as the member;
(b) natural resources located in that territory;
(c) a right to use a tangible asset located in that territory under a lease;
(d) a license or similar right to use a tangible asset located in that territory, provided that—
(i) the right is granted by a government of that territory, and
(ii) it is expected in granting the right that the member will, in using that right, incur significant expenditure in enhancing the value of tangible assets in that territory (whether or not those assets are subject to the right).
(6A) Where an asset falling within paragraph (a), (c) or (d) of subsection (6) is only located in the same territory as the member for part of the period—
(a) it is to be regarded for the purposes of this section as located in that territory for the whole period, but
(b) where the proportion of the period in which the asset (or in the case of a right, the asset to which the right relates) is located in the territory is 50% or less, the carrying values for the purposes of subsection (1)(a) and (b) are to be multiplied by that proportion.
(7) An asset is an excluded asset if it is of one of the following types—
(a) property (including land or buildings) that is held for sale, lease or investment (whether such sale, lease or investment is to be carried out in the period or not);
(b) an asset used in the course of core international shipping activity (see section 157);
(c) an asset used in the course of ancillary international shipping activity (see section 158), subject to subsections (8) and (9).
(7A) Where part of an asset comprising property is held by a member of a multinational group for lease, but another part of that property is retained for use by the member—
(a) the parts are to be treated as separate assets for the purposes of this section and section 197A, and
(b) the carrying value of the asset is to be allocated between the separate parts on a just and reasonable basis.
(8) Where the member has an ancillary international shipping profit cap adjustment of more than nil for the period, only the eligible proportion of an asset used in the course of ancillary international shipping activity is to be treated as an excluded asset.
(9) The eligible proportion is the proportion given by dividing—
(a) the member’s ancillary international shipping profits for the period, by
(b) the amount given by subtracting the member’s ancillary international shipping costs from the member’s ancillary international shipping revenue for the period.
(10) A member of a multinational group that is a flow-through entity that is a responsible member of the group but which is not the ultimate parent is to be regarded as having an eligible tangible asset amount of nil (subject to the application of section 198ZB).
(1) Subsection (2) applies where—
(a) a member of a multinational group holds property located in the same territory as the member in an accounting period,
(b) that property is held for lease by the member, and
(c) the lease is accounted for in the underlying profits accounts of the member as an operating lease for that period.
(2) The property is to be regarded as an eligible tangible asset of the member for that period (despite the exclusion in section 197(7)(a)).
(3) But where the property is not a short-term rental asset for that period, any carrying value of the property recorded at the start or the end of the period is to be reduced by the right-of-use amount for the property at that time for the purposes of carrying out the calculation in section 197(1).
(4) In a case where the lessee is a member of the same multinational group as the lessor, the right-of-use amount in relation to the property at the start or the end of the period is the carrying value of the lessee’s right-of-use asset in relation to the property recorded at that time.
(5) Where the lessee is not a member of the same multinational group as the lessor, the right-of-use amount in relation to the property at the start or end of the period is the undiscounted value of any outstanding payments under the lease at that time.
(6) In determining the value of those outstanding payments—
(a) apply the accounting standard used in determining the underlying profits of the member,
(b) include the value of any outstanding payments that would be due under any extension to the lease that would fall to be accounted for in accordance with that standard.
(7) For the purposes of this section, property held for lease is a short-term rental asset in an accounting period if—
(a) the property was leased regularly during that period to different lessees, and
(b) the average length of the periods for which it was leased does not exceed 30 days.
(1) Sections 196 and 197 apply in relation to permanent establishments with the following modifications.
(2) In determining under section 196 the eligible payroll costs of a permanent establishment within section 232(2)(a) to (c), the only amounts to be taken into account are amounts that would be taken into account in determining the adjusted profits of the establishment.
(3) In determining under section 197 the eligible tangible asset amount of a permanent establishment within section 232(2)(a) to (c), the only assets to be taken into account are assets used in the business of the establishment.
(4) Both the eligible payroll costs and the eligible tangible asset amount of a permanent establishment within section 232(2)(d) are nil.
(5) If but for this subsection—
(a) an amount would be taken into account under section 196 in respect of both a permanent establishment and the main entity, or
(b) an asset would be taken into account under section 197 in respect of both a permanent establishment and the main entity,
the amount or asset is only to be taken into account in respect of the permanent establishment.
(1) A member of a multinational group that is a flow-through entity has a flow-through payroll amount for a territory for an accounting period if the member has costs that would be eligible payroll costs if the member were located in that territory and were not a flow-through entity and—
(a) there is at least one other member of the group—
(i) that is not a flow-through entity,
(ii) that is located in that territory, and
(iii) to whom a proportion of the underlying profits of the flow-through entity for the accounting period are allocated under section 168 (underlying profits of transparent entities) or, where the underlying profits of the entity are nil or less, would be so allocated if the flow-through entity had underlying profits of 100 euros, or
(b) the entity—
(i) is a flow-through entity to some extent for that period as a result of section 169 (certain non tax resident entities to be treated as flow-through entities),
(ii) is not a flow-through entity to some extent for that period, and
(iii) was created in that territory.
(2) Section 196 applies for the purposes of determining a flow-through payroll amount of a flow-through entity for a territory as it applies for the purposes of determining eligible payroll costs but as if—
(a) any reference in that section to the territory of the member were to the territory to which the flow-through payroll amount relates, and
(b) subsection (7) of that section were omitted.
(3) Where a member of a multinational group that is a flow-through entity has a flow-through payroll amount for a territory for an accounting period, the eligible payroll costs of each member of the group falling within subsection (1)(a) for that period (which may be nil) are to be increased by the amount given by multiplying the flow-through payroll amount by the relevant proportion in relation to that member for that period.
(4) The relevant proportion in relation to a member for an accounting period is the proportion of the underlying profits of the flow-through entity for that period—
(a) in a case where the flow-through entity has underlying profits that exceed nil for that period, that is allocated to that member under section 168, or
(b) in a case where the underlying profits of the flow-through entity for that period are nil or less, that would be allocated to that member if the flow-through entity had underlying profits of 100 euros.
(5) Where a flow-through entity—
(a) is a flow-through entity to some extent for an accounting period as a result of section 169,
(b) is not a flow-through entity to some extent for that period, and
(c) was created in a territory for which it has a flow-through payroll amount for that period,
the eligible payroll costs of that entity for that period (which may be nil) are to be increased by the amount given by multiplying that flow-through payroll amount by the relevant proportion in relation to that entity for that period.
(6) The relevant proportion in relation to that entity for an accounting period is the proportion of the underlying profits of the entity for that period—
(a) in a case where the entity has underlying profits that exceed nil for that period, that are not allocated to any other entity under section 168, or
(b) in a case where the underlying profits of the entity for that period are nil or less, that would not be allocated to any other entity under that section if the entity had profits of 100 euros.
(7) For the purposes of applying this section in relation to a multinational group whose ultimate parent is a flow-through entity, the ultimate parent is to be treated as not being a flow-through entity.
(1) A member of a multinational group that is a flow-through entity that is not the ultimate parent has a flow-through tangible asset amount for a territory for an accounting period if the member holds one or more assets in that territory and—
(a) there is at least one other member of the group—
(i) that is not a flow-through entity,
(ii) that is located in that territory, and
(iii) to whom a proportion of the underlying profits of the flow-through entity for the accounting period are allocated under section 168 (underlying profits of transparent entities) or, where the underlying profits of the entity are nil or less, would be so allocated if the flow-through entity had underlying profits of 100 euros, or
(b) the entity—
(i) is a flow-through entity to some extent for that period as a result of section 169 (certain non tax resident entities to be treated as flow-through entities),
(ii) is not a flow-through entity to some extent for that period, and
(iii) was created in that territory.
(2) Sections 197 and 197A apply for the purposes of determining a flow-through tangible asset amount of a flow-through entity for a territory as they apply for the purposes of determining an eligible tangible asset amount but as if—
(a) any reference in those sections to the territory of the member were to the territory to which the flow-through tangible asset amount relates, and
(b) subsection (10) of section 197 were omitted.
(3) Where a member of a multinational group that is a flow-through entity has a flow-through tangible asset amount for a territory for an accounting period, the eligible tangible asset amount of each member of the group falling within subsection (1)(a) for that period (which may be nil) is to be increased by the amount given by multiplying the flow-through tangible asset amount by the relevant proportion in relation to that member for that period.
(4) The relevant proportion in relation to a member for an accounting period is the proportion of the underlying profits of the flow-through entity for that period—
(a) in a case where the flow-through entity has underlying profits that exceed nil for that period, that is allocated to that member under section 168, or
(b) in a case where the underlying profits of the flow-through entity for that period are nil or less, that would be allocated to that member if the flow-through entity had underlying profits of 100 euros.
(5) Where a flow-through entity—
(a) is a flow-through entity to some extent for an accounting period as a result of section 169,
(b) is not a flow-through entity to some extent for that period, and
(c) was created in a territory for which it has a flow-through tangible asset amount for that period,
the eligible tangible asset amount of that entity for that period (which may be nil) is to be increased by the amount given by multiplying that flow-through tangible asset amount by the relevant proportion in relation to that entity for that period.
(6) The relevant proportion in relation to that entity for an accounting period is the proportion of the underlying profits of the entity for that period—
(a) in a case where the entity has underlying profits that exceed nil for that period, that are not allocated to any other entity under section 168, or
(b) in a case where the underlying profits of the entity for that period are nil or less, that would not be allocated to any other entity under that section if the entity had profits of 100 euros.
(7) For the purposes of applying this section in relation to a multinational group whose ultimate parent is a flow-through entity, the ultimate parent is to be treated as not being a flow-through entity.
(1) In determining for an accounting period the eligible payroll costs or eligible tangible asset amount of a flow-through entity that is the ultimate parent of a multinational group, the amount given by section 196 or 197 is to be reduced by the section 170 proportion.
(2) In subsection (1), “the section 170 proportion” means the proportion of the adjusted profits of the flow-through entity for the accounting period that—
(a) in a case where subsection (1) of 170 (adjustments for ultimate parent that is a flow-through entity) applies, is excluded under that subsection, or
(b) in a case where that subsection does not apply as a result of the entity having not made a profit for that period, would be excluded under that subsection if the entity had adjusted profits of 100 euros.
(3) In subsection (2), “the adjusted profits” means the adjusted profits before the application of section 170.
198A Power to make provision about treatment of payroll costs and assets
(1) The Treasury may by regulations make provision about the treatment of payroll costs and tangible assets in specified circumstances.
(2) Regulations may, in particular, provide that in determining the substance based income exclusion for a territory—
(a) specified eligible tangible assets or eligible payroll costs are to be treated as having a different value;
(b) specified eligible tangible assets or eligible payroll costs are to be attributed to a different member of a multinational group or to a different territory;
(c) specified eligible tangible assets or eligible payroll costs are to be excluded from that determination;
(d) specified assets that are not eligible tangible assets are to be treated as eligible tangible assets;
(e) specified costs that are not eligible payroll costs are to be treated as eligible payroll costs.
(3) In this section “specified” means specified or described in regulations.
199 Election to treat certain top-up amounts as nil
(1) The filing member of a multinational group may elect that the top-up amounts of the relevant members for an accounting period (“the current period”) for a territory are to be treated as nil.
(2) An election under this section may be made only if—
(a) the average revenue for an accounting period of the relevant members of the group in that territory is less than 10 million euros, and
(b) the average of the adjusted profits of those members for an accounting period is less than 1 million euros.
(2A) In this section, a member of a multinational group is a “relevant” member if it is—
(a) a standard member of the group, or
(b) a minority owned member of the group.
(3) The average revenue for an accounting period of the relevant members of a multinational group in a territory is determined by adding together all of the revenue of those members in each qualifying accounting period, and dividing the result by the number of qualifying accounting periods.
(4) The average of the sum of the adjusted profits of the relevant members of a multinational group in a territory is determined by taking the following steps—
Step 1
Determine the sum of the adjusted profits of each of those members for each qualifying accounting period.
Step 2
Add together the results of Step 1.
Step 3
Divide the result of Step 2 by the number of qualifying accounting periods.
(5) The current period is a qualifying accounting period.
(6) Each of the previous two accounting periods is a qualifying period unless—
(a) none of the relevant members of the group in the territory had revenue in that period, and
(b) none of the relevant members of the group in the territory made a loss in that period.
(7) Where a qualifying period is longer or shorter than a year, the adjusted profits and revenue of the members are to be treated for the purposes of this section as the amounts given by multiplying the profits and revenue by the amount given by dividing 365 by the number of days in the period.
(8) An election under this section may not be made in respect of the nominal territory of a stateless member of a multinational group.
(9) Paragraph 2 of Schedule 15 (annual elections) applies to an election under this section.
(1) The amount of a top-up amount of a member of a multinational group that is attributed to a responsible member (see section 128) is found by multiplying the top-up amount by the responsible member’s inclusion ratio for the member whose top-up amount it is.
(2) Where the responsible member’s (“the first responsible member”) interest in the member is through another responsible member, the first responsible member’s top-up amount is to be reduced (but not below nil) by the amount attributed under this section to that other responsible member.
(1) A responsible member’s inclusion ratio for a member with a top-up amount (“the relevant member”) is found as follows—
Step 1
Determine the adjusted profits of the relevant member with the top-up amount (in accordance with Chapter 4).
Step 2
Determine how much of those profits are attributable to ownership interests held by individuals and entities other than the responsible member , but excluding ownership interests in respect of which an amount has been excluded from the relevant member’s adjusted profits.
Step 3
Subtract the amount determined under Step 2 from the amount determined under Step 1.
Step 4
The inclusion ratio is given by dividing the amount determined under Step 3 by the amount determined under Step 1 .
(2) The amount of profits of the relevant member attributable to ownership interests held by individuals and entities other than the responsible member is the amount that would, in hypothetical consolidated financial statements prepared by the responsible member (whether or not it actually prepared consolidated financial statements), have been treated in those statements as attributable to such individuals and entities under the principles of the authorised accounting standard used, or treated as used (see section 249(1)(d)), in the ultimate parent’s consolidated financial statements.
(3) For the purposes of determining what that amount would be in those hypothetical consolidated financial statements of the responsible member, use the following assumptions—
(a) the relevant member’s profits were its adjusted profits as determined in accordance with Chapter 4;
(b) the responsible member had a controlling interest in the relevant member such that all of its income and expenses were consolidated on a line-by-line basis with those of the responsible member;
(c) all of the profits of the relevant member were attributable to transactions with persons who are not members of the multinational group;
(d) all ownership interests that are not directly or indirectly held by the responsible member were held by persons other than members of the multinational group.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
202 Covered taxes balance less than nil when members in a territory have a profit
(1) This section applies to the standard members of a multinational group in a territory (“the relevant territory”) in an accounting period (“the current period”) if—
(a) those members do not have a collective loss for the current period, and
(b) the combined covered tax balance for those members for the current period is less than nil (including as a result of this section or section 205 having applied in a previous accounting period).
(2) Where this section applies—
(a) the amount of the combined covered tax balance for the current period is to be added to the combined covered tax balance for the standard members in the relevant territory in the next accounting period in which those members do not have a collective loss (which as the balance for the current period is negative will reduce the combined covered tax balance for that next period), and
(b) the combined covered tax balance for those members for the current period is to be treated as nil (and as a result of Step 5 in section 132(1) their effective tax rate for the current period will be 0%).
(3) For the purposes of this section and sections 203 to 205, the standard members of a multinational group in a territory have a collective loss for a period if the result of Step 2 in section 132(1) is nil or less for those members for that period.
203 Additional top-up amounts where covered taxes less than expected
(1) This section applies in an accounting period in relation to standard members of a multinational group in a territory where—
(a) those members have a collective loss for that period, and
(b) the combined covered tax balance for those members for the current period is less than nil, and
(c) the collective negative covered tax balance expressed as a positive number is greater than the amount given by multiplying the collective loss expressed as a positive number by 15% (“the expected covered tax amount”).
(2) Where this section applies, those members in that territory collectively have an additional top-up amount (a “collective additional amount”) equal to the difference between the expected covered tax amount and the combined covered tax balance.
(3) Where those members have a QDT credit for the accounting period, the collective additional amount under this section is to be reduced in accordance with subsections (4) to (7).
(4) Where—
(a) the standard members do not have a collective additional amount under section 206 for the period, and
(b) the collective additional amount under this section (before any reduction) is equal to or greater than the sum of amounts of qualifying domestic top-up tax accrued by those members in that period,
the collective additional amount under this section is to be reduced by the sum of those accrued amounts.
(5) Where—
(a) the standard members do not have a collective additional amount under section 206 for the period, and
(b) the collective additional amount under this section (before any reduction) is less than the sum of amounts of qualifying domestic top-up tax accrued by those members in that period,
the collective additional amount under this section is to be reduced to nil.
(6) Where—
(a) the standard members have a collective additional amount under section 206 for the period, and
(b) the sum of the collective additional amount under this section (before any reduction) and the collective additional amount under section 206 is less than the sum of amounts of qualifying domestic top-up tax accrued by those members in that period,
the collective additional amount under this section is to be reduced to nil.
(7) Where—
(a) the standard members have a collective additional amount under section 206 for the period, and
(b) the sum of the collective additional amount under this section (before any reduction) and the collective additional amount under section 206 is equal to or greater than the sum of amounts of qualifying domestic top-up tax accrued by those members in that period,
the collective additional amount under this section is to be reduced by the amount given by multiplying the sum of those amounts of qualifying domestic top-up tax by the amount given by dividing the collective additional amount under this section by the sum of that collective additional amount and the collective additional amount under section 206.
204 Allocation of collective additional amount under section 203 to members
(1) Where the standard members of a multinational group in a territory have a collective additional amount under section 203, an amount of that amount is to be allocated to each member that has a negative covered tax balance, expressed as a negative number, which is less than the adjusted profits of that member (which may be positive or negative) multiplied by 15%.
(2) To determine the amount of the collective additional amount to be allocated to each such member, take the following steps—
Step 1
For each such member determine the amount given by subtracting the member’s negative covered tax balance, expressed as a negative number, from its adjusted profits multiplied by 15%.
Step 2
Add together the amounts determined under Step 1.
Step 3
For each such member, divide the amount determined for that member under Step 1 by the result of Step 2.
Step 4
Allocate to each member the amount given by multiplying the result of Step 3 for that member by the collective additional amount.
(3) For the purposes of this Part, an amount of a collective additional amount allocated to a member of a multinational group under this section is an additional top-up amount.
(4) Chapter 7 (allocation of top-up amounts to responsible members) applies to an additional top-up amount allocated to a member of a multinational group under this section as it applies to a top-up amount of that member as if the adjusted profits of that member were the amount given by dividing the additional top-up amount by 15%.
205 Election to carry forward and reduce collective additional amount
(1) This section applies where the standard members of a multinational group in a territory (“the relevant territory”) have a collective additional amount under section 203 for an accounting period (“the current period”) and the filing member of the group has elected for this section to apply for that period.
(2) Where this section applies—
(a) the qualifying amount of the collective additional amount under section 203 for the current period is to be subtracted from the combined covered tax balance for the standard members of the group in the relevant territory in the next accounting period in which the members of the group in the relevant territory do not have a collective loss, and
(b) the collective additional amount under section 203 for the current period is to be reduced by the qualifying amount of that collective additional amount (including to nil where the whole amount is qualifying).
(3) The amount of the collective additional amount under section 203 that is “qualifying” is the amount given by subtracting the amount of any deferred tax asset deemed to arise under section 217(7) for the period.
(4) Paragraph 2 of Schedule 15 (annual elections) applies to an election under this section.
206 Additional top-up amounts where recalculations required
(1) This section applies to the standard members (“the current members”) of a multinational group in an accounting period (“the current period”) in a territory where—
(a) a recalculation is required in the current period in relation to one or more previous accounting periods (each a “prior period”) as a result of any of the following sections—
(i) section 163(4);
(ii) section 184(2);
(iii) section 217(5);
(iv) section 219(1), or
(b) the current members have a special additional top-up tax amount under section 192 for the current period.
(2) Where—
(a) the sum of the top-up amounts that the standard members of the group in the territory in a prior period would have for that period, determined in accordance with a recalculation required under one of the sections mentioned in subsection (1)(a), is greater than the sum of the top-up amounts those members had for that prior period, or
(b) this section applies as a result of subsection (1)(b) (whether or not it also applies as a result of subsection (1)(a)),
the current members collectively have an additional top-up amount (a “collective additional amount”) under this section for the current period.
(3) Take the following steps to determine the collective additional amount under this section—
Step 1
Where one or more recalculations are required in accordance with any of the sections mentioned in subsection (1)(a), for each prior period carry out the recalculation or recalculations required in respect of that period to establish the top-up amounts the standard members of the group in the territory for the prior period would have had for that period (taking account of all recalculations required for that period).
Step 2
For each prior period, subtract the sum of the top-up amounts those members had for that prior period from the sum of top-up amounts that those members would have for that period.
Step 3
Add together all of the results of Step 2 that are greater than nil (and if there are no such results, the result of this step is nil).
Step 4
Where the current members have a special additional top-up tax amount under section 192 for the current period, add that amount to the result of Step 3 (which may be nil).
(4) Where the current members have a QDT credit for the accounting period, the collective additional amount under this section is to be reduced as follows)
(5) Where—
(a) the current members do not have a collective additional amount under section 203 for the current period,
(b) the total top-up amount for the current period for the current members is nil, and
(c) the collective additional amount under this section (before any reduction) is equal to or greater than the sum of amounts of qualifying domestic top-up tax accrued by those members in that period,
the collective additional amount under this section is to be reduced by the sum of those accrued amounts.
(6) Where—
(a) the current members do not have a collective additional amount under section 203 for the current period,
(b) the total top-up amount for the current period for the current members is nil, and
(c) the collective additional amount under this section (before any reduction) is less than the sum of amounts of qualifying domestic top-up tax accrued by those members in that period,
the collective additional amount under this section is to be reduced to nil.
(7) Where—
(a) the current members have a collective additional amount under section 203 for the current period or the total top-up amount for the current period for the current members is greater than nil, and
(b) the sum of the collective additional amount under this section (before any reduction), any collective additional amount under section 203 and the total top-up amount for the current period for the current members is less than the sum of amounts of qualifying domestic top-up tax accrued by those members in that period,
the collective additional amount under this section is to be reduced to nil.
(8) Where—
(a) the current members have a collective additional amount under section 203 for the period or the total top-up amount for the current period for the current members is greater than nil, and
(b) the sum of the collective additional amount under this section (before any reduction), any collective additional amount under section 203 and the total top-up amount for the current period for the current members is equal to or greater than the sum of amounts of qualifying domestic top-up tax accrued by those members in that period,
the collective additional amount under this section is to be reduced by the relevant amount.
(9) The relevant amount is the amount given by multiplying—
(a) the sum of the amounts of qualifying domestic top-up tax accrued by the current members in the current period, by
(b) the amount given by dividing—
(i) the collective additional amount under this section, by
(ii) the sum of that collective additional amount, any collective additional amount under section 203 and the total top-up amount for the current period.
207 Allocation of collective additional amounts under section 206 to members
(1) Where the standard members of a multinational group in a territory have a collective additional amount under section 206 for an accounting period (“the current period”), that amount is to be allocated to those members as follows—
Step 1
Determine the sum of the top-up amounts that those members would have (in prior accounting periods) in accordance with the recalculation, or recalculations, that relate to that collective additional amount.
Step 2
Determine the sum of the top-up amounts that each of those members would have in accordance with the recalculation, or recalculations, that relate to the collective additional amount.
Step 3
For each member where the result of Step 2 is greater than nil, divide that result by the result of step 1.
Step 4
Each such member has an additional top-up amount under this section equal to the amount given by multiplying the collective additional amount by the result of Step 3 for that member.
(2) Chapter 7 (allocation of top-up amounts to responsible members)—
(a) applies to an additional top-up amount allocated to a member of a multinational group under this section as it applies to a top-up amount of that member, and
(b) if the result of Step 2 in section 132(1) in relation to the standard members of the group for the current period is nil or less (those members between them have made a loss), has effect as if the adjusted profits of that member were the amount given by dividing the additional top-up amount by 15%.
(1) Subsection (2) applies to an entity where, in an accounting period (“the transfer period”) of a multinational group, the entity—
(a) becomes a member of that multinational group (including, where it was previously a member of a different group, as a result of it becoming the ultimate parent of a new group), or
(b) ceases to be a member of that multinational group.
(2) The entity is to be treated as a member of that group for the whole of the transfer period (whether or not that results in it being treated as a member of two or more groups) if any portion of its assets, liabilities, income, expenses or cash flows are included on a line-by-line basis in the consolidated financial statements of the ultimate parent for that period.
(3) But in applying this Part in relation to the entity as a member of the multinational group it has become or ceased to be a member of, only its profits, covered taxes and (where applicable) eligible payroll costs that are taken into account in the consolidated financial statements of the ultimate parent are to be taken account of.
(4) Any purchase accounting consolidation adjustments arising from the transfer of the ownership interests resulting in an entity becoming a member of a multinational group are to be ignored in determining the adjusted profits and covered tax balance of that entity as a member of that group in the transfer period and in subsequent accounting periods.
(5) When (where applicable) determining the eligible tangible asset amount of an entity that becomes a member of a multinational group as a member of that group in the transfer period, adjust that amount by multiplying it by the amount given by dividing the number of days in the post-transfer period by the number of days in the transfer period.
(6) For the purposes of subsection (5) the “post-transfer period” means the period beginning with the day on which the member became or (as the case may be) ceased to be a member of a multinational group and ending with the last day of the transfer period.
(7) When (where applicable) determining the eligible tangible asset amount of an entity that ceased to be a member of a multinational group as a member of that group in the transfer period, adjust that amount by multiplying it by the amount given by dividing the number of days in the pre-transfer period by the number of days in the transfer period.
(8) For the purposes of subsection (7) the “pre-transfer period” means the period beginning with the commencement of the transfer period and ending with the day before the day on which the ownership interests were transferred.
(9) Subsections (10) and (11) apply where an entity that becomes a member of a multinational group (“group A”) as a result of a transfer of direct or indirect ownership interests in it was a member of another multinational group immediately before the transfer (“group B”).
(10) The amount of deferred tax assets and tax liabilities (which for these purposes does not include a special loss deferred tax asset) of the entity that existed immediately before the transfer to be taken into account in relation to that entity as a member of group A is the amount that would have been taken into account had group A had a controlling interest in the entity at the time the assets and liabilities arose.
(11) Where a deferred tax liability of the entity was included in the total deferred tax adjustment amount for that member in group B—
(a) that deferred tax liability is to be deemed to have reversed without the need to reflect the reversal in any calculation made for the purposes of this Part in relation to group B, and
(b) the deferred tax liability is to be treated as arising in the transfer period for the purpose of determining the total deferred tax adjustment amount for the member in group A,
(c) any resulting reduction in the covered tax balance of the entity as a member of group A (see sections 182 and 184) is only to have effect in the accounting period in which the deferred tax liability is recaptured.
209 When transfer of controlling interest treated as acquisition of assets and liabilities
(1) This section applies to the acquisition or disposal of a controlling interest in a member of a multinational group where—
(a) the acquisition or disposal of that controlling interest is treated in the same, or a similar manner, as a transfer of assets and liabilities of the member (rather than ownership interests in it) by—
(i) in the case of the acquisition or disposal of a controlling interest in an entity which is tax transparent under the law of the territory in which it was created, the territory in which the assets are located, or
(ii) in any other case, the territory in which the member is located, and
(b) that territory imposes a covered tax on the seller based on the difference between the tax basis and either the consideration paid in exchange for the controlling interest or the fair value of the assets and liabilities.
(2) Where this section applies to an acquisition or disposal of a controlling interest in a member of a multinational group, that acquisition or disposal is to be treated as an acquisition or disposal of the assets and liabilities of the member (and accordingly, section 208 will not apply in relation to that transfer).
(3) Any covered tax arising in relation to the disposal of a controlling interest in a member of a multinational group described in subsection (1)(b) is to included in the covered tax balance of that member.
210 Transfer of assets or liabilities from a member of a multinational group
(1) Where a member of a multinational group transfers assets or liabilities to another entity in the course of a qualifying reorganisation (see section 212), any gain or loss on the transfer is to be excluded from the adjusted profits of the member, except to the extent it is a non-qualifying gain or loss.
(2) In this section, and in sections 211 and 212, “non-qualifying gain or loss” means a gain or loss of the transferor on the transfer of assets or liabilities, and is the lesser of—
(a) the amount of that gain or loss that is subject to tax in the territory the transferor is located in, and
(b) the amount of that gain or loss reflected in the underlying profits accounts of the transferor.
211 Transfer of assets or liabilities to a member of a multinational group
(1) Subsection (1A) applies where there has been a transfer of assets or liabilities to a member of a multinational group and—
(a) the transfer forms part of a qualifying reorganisation (see section 212), or
(b) the transferor is a member of the group and—
(i) the transferee is located in the same territory as the transferor,
(ii) the transferee and transferor are included in the same tax consolidation group in that territory (within the meaning of section 164(5)), and
(iii) an election under section 164 (election to exclude intra-group transactions) has effect in relation to those members at the time of the transfer.
(1A) The value of the assets or liabilities is, for the purpose of determining the adjusted profits of the member, the carrying value of the assets or liabilities in the hands of the transferor immediately before the transfer.
(1B) Subsection (1C) applies where there has been a transfer of assets or liabilities to a member of a multinational group and subsection (1A) does not apply.
(1C) The value of the assets or liabilities is, for the purpose of determining the adjusted profits of the member, the carrying value of the assets or liabilities immediately after the transfer as determined under the accounting standard used in determining the underlying profits of the member for the purposes of this Part and subject to the adjustments to those profits made in accordance with Chapter 4.
(2) But subsection (3) applies where—
(a) subsection (1C) applies in relation to the transfer,
(b) the transfer is from another member of the group, ...
(ba) the transferor and the transferee are not members of the same type located in the same territory, and
(c) neither a gain nor a loss is recorded in the underlying profits accounts of the transferor in respect of that transfer.
(3) Where this subsection applies the adjusted profits of both the transferor and the transferee are to be adjusted to secure that the transfer is reflected on an arm’s length basis (see section 149(7)).
(4) Where a member of a multinational group transfers assets or liabilities to another entity in the course of a qualifying reorganisation, and recognises a non-qualifying gain or loss as a result of that transfer—
(a) that gain or loss, to the extent it is non-qualifying, is to be included in the adjusted profits of the member, and
(b) where the other entity is a member of a multinational group, the value of the assets or liabilities is, for the purposes of determining the adjusted profits of that member, to be adjusted to exclude the non-qualifying gain or loss in a manner consistent with the tax treatment of the assets or liabilities.
(5) For the purposes of subsection (2) two members of a multinational group are of the same type if—
(a) they are both standard members of the group,
(b) they are both investment entities, or
(c) they are both members of the same minority subgroup (see section 228).
(1) For the purposes of sections 210 and 211, a transfer of assets or liabilities is made in the course of a qualifying reorganisation if the transfer takes place as a result of a merger, de-merger, liquidation or a change in form of an entity, or a similar event, and conditions A, B and C are met.
(2) Condition A is that—
(a) any consideration for the transfer is, or the transfer involves, wholly or mostly equity interests issued by the transferee, or by a person connected with the transferee,
(b) in the case of a liquidation, any consideration for the transfer is, or the transfer involves, wholly or mostly, the cancellation of equity interests in the entity subject to the liquidation, or
(c) the reorganisation does not result in a change in the ownership of an entity.
(3) Condition B is that any gain or loss of the transferor that arises from the transfer is not, in whole or in part, subject to tax.
(4) Condition C is that, under the law of the territory the transferee is located in, the value of the assets or liabilities for the purpose of determining the transferee’s taxable income is no greater than the tax basis value of the assets or liabilities in the hands of the transferor, adjusted for any non-qualifying gain or loss.
(5) Sections 719 to 724A of CTA 2010 (change in company ownership) have effect for the purposes of determining whether there has been a change in ownership of an entity as if—
(a) references in those sections to “company” were to “entity”;
(b) references in those sections to ordinary share capital or shares (however expressed), in relation to a company, were to ownership interests in an entity;
(c) in section 721—
(i) in subsection (1), “for the purposes of Chapters 2 to 5A” were omitted,
(ii) in subsection (3), for the words from “major change” to the end there were substituted “a change in the ownership of the company”,
(iii) in subsection (4), the words from “for” to “5A” were omitted,
(iv) in that subsection, paragraph (a) were omitted, and
(v) in that paragraph (a) of that subsection, for “share capital” there were substituted “ownership interests”;
(d) section 722, and references to it in those sections, were omitted;
(e) in section 724—
(i) in subsection (2) for “conditions A, B and C are met” there were substituted “the parent entity has at least 75% of the ownership interests in the subsidiary entity”, and
(ii) subsections (3) to (6) were omitted;
(f) in section 724A—
(i) in subsection (1), in the words before paragraph (a), “for the purposes of Chapters 2 to 6” were omitted, and
(ii) in that subsection, paragraphs (b) and (c) were omitted, and
(iii) subsection (8) were omitted.
(1) The filing member of a multinational group may make an investment entity tax transparency election in relation to a member of the group that is an investment entity (“M”) and a member of the group with ownership interests in that entity (“O”).
(2) For the purposes of determining whether O has ownership interests in M, only interests that give rise to a share of profits are to be taken into account.
(3) An investment entity tax transparency election is an election that, for the purposes of sections 168 (underlying profits of transparent entities) and 178 (covered taxes of transparent entities)—
(a) M is to be treated as a flow-through entity,
(b) M is to be treated as regarded as tax transparent in the territory of O, and
(c) O is to be treated as having direct ownership interests in M.
(4) To determine the percentage of direct ownership interest O is to be treated as having in M, section 246(1) applies as if paragraph (b) were omitted, and for those purposes only interests that give rise in a share of profits are relevant.
(5) The filing member may only make such an election if—
(a) an election under section 214 is not in effect in relation to M and O, and
(b) either—
(i) O is subject to tax (in the territory in which O is located) on increases in the fair value of its ownership interests in M, and the rate of tax applicable to such increases is equal to or exceeds 15%, or
(ii) O is a regulated mutual insurance entity.
(6) An entity is a “regulated mutual insurance entity” if—
(a) it is regulated or authorised to carry on insurance business, and
(b) it is wholly owned by persons with which it has entered into insurance contracts.
(6A) Where, ignoring the election, profits and amounts of qualifying tax expense would be allocated to M in accordance with sections 168 and 178 to 181, those profits and amounts are to be allocated—
(a) first to M, and then
(b) to O in proportion to the direct ownership interests O is treated as having in M.
(7) Paragraph 1 of Schedule 15 (long term elections) applies to an election under this section.
(8) Subsection (9) applies where—
(a) an election under this section has been revoked, and
(b) the adjusted profits of M fall to be determined for the first accounting period in respect of which the election no longer applies (the “revocation period”).
(9) In determining those profits, the value of any gain or loss from the disposition of an asset or liability by M is to be determined by reference to the fair value of the asset or liability as at the first day of the revocation period.
(10) Subsection (11) applies where—
(a) an election under this section has been revoked, and
(b) the adjusted profits of M fall to be determined for an accounting period—
(i) after the revocation period, but
(ii) before an accounting period for which a further election under this section has been made.
(11) In determining those profits, the value of any gain or loss from the disposition of an asset or liability by M is to be determined by reference to—
(a) if M’s assets and liabilities are accounted for on a realisation basis, the fair value of the asset or liability as at the first day of the revocation period;
(b) if M’s assets and liabilities are accounted for on a fair value basis, the fair value of the asset or liability as accounted for at the end of the previous accounting period.
(1) The filing member of a multinational group may elect that a member of the group (an “owner”) with direct ownership interests in an investment entity that is a member of the group is to have those interests treated in accordance with this section.
(2) The filing member may only make such an election if—
(a) an election under section 213 is not in effect in relation to the owner,
(b) the owner is not itself an investment entity, and
(c) the owner can reasonably be expected to be subject to tax (in the territory in which it is located) on distributions from the entity at a rate equal to or exceeding 15%.
(3) If an election is made under this section, in calculating amounts under this Part—
(a) distributions and deemed distributions from the investment entity to the owner in an accounting period are to be included in the adjusted profits of the owner in that period;
(b) credit the owner receives to reduce the tax payable by the owner in an accounting period to reflect tax payable or to be paid by the entity in that period is to be included in the adjusted profits of the owner in that period;
(c) if the owner receives such credit, such tax payable or to be paid by the entity in an accounting period is to be taken into account in determining the covered tax balance of the owner in that period.
(4) If an election is made under this section—
(a) an undistributed income amount for the entity for an accounting period is to be determined under section 215, and
(b) any positive undistributed income amount is to be added to the top-up amount of that entity as determined under section 220(1) (see section 220(2)).
(5) Paragraph 1 of Schedule 15 (long term elections) applies to an election under this section.
(6) Subsection (7) applies where—
(a) an election under this section has been revoked, and
(b) the adjusted profits of the investment entity fall to be determined under section 220 for the first accounting period in respect of which the election no longer applies.
(7) Those profits are to include any positive undistributed income amount for the entity for the previous accounting period.
(1) The undistributed income amount for an investment entity for an accounting period is the entity’s adjusted profits for the income period less the amounts referred to in subsection (2).
(2) The amounts are—
(a) the covered taxes payable by the entity (determined in accordance with Chapter 5) in the income period;
(b) distributions and deemed distributions paid by the entity and received by shareholders other than other investment entities in the review period;
(c) if, on determining the adjusted profits for the accounting periods in the review period, the entity has made a loss for one or more of those periods ..., the sum of those losses;
(d) the investment loss carry-forward amount for the review period.
(3) But an amount referred to in subsection (2) is not to be deducted from the undistributed income amount for an accounting period if it has already been deducted from the undistributed income amount for a previous accounting period.
(4) In this section—
(a) the “income period” is the third accounting period before the accounting period for which the undistributed income amount falls to be determined;
(b) the “review period” is the period beginning with the first day of the income period and ending with the last day of the accounting period for which the undistributed income amount falls to be determined;
(c) a “deemed distribution” is an amount arising from the transfer of an ownership interest held by the owner to a person that is not a member of the group;
(d) the amount of a deemed distribution is to be calculated as the undistributed income amount for the accounting period in which the transfer occurs (disregarding the deemed distribution) multiplied by the transfer factor;
(e) the transfer factor is the value of the ownership interest transferred divided by the sum of that value and the value of the remaining ownership interest held by the owner;
(f) the “investment loss carry-forward amount” for a review period is the amount of any losses not deducted from the undistributed income amount for any accounting period preceding the review period.
216 Election where assets and liabilities adjusted to fair value for tax purposes
(1) This section applies to a member of a multinational group if the filing member has made an election under this section in respect of a relevant tax adjustment made in an accounting period (“the adjustment period”) in relation to that member.
(2) A “relevant tax adjustment” is an adjustment to the value of assets or liabilities of a member of a multinational group for tax purposes so that they reflect fair value that is required or permitted, under the law of the territory the member is located in, as a result of the occurrence of an event.
(3) But adjustments made in connection with transfer pricing, or in connection with the sale of assets in the course of carrying on a trade, are not relevant tax adjustments.
(4) Where this section applies to the member—
(a) the member has an adjustment amount in respect of each asset or liability that is subject to the relevant adjustment, and
(b) the value of an asset or liability subject to the relevant adjustment is to be treated, for the purpose of determining the member’s adjusted profits in the adjustment period and subsequent accounting periods, as its fair value immediately after occurrence of the event that caused, or enabled, the adjustment to be made.
(5) An adjustment amount is to be—
(a) included in the adjusted profits of the member for the adjustment period, or
(b) split into 5 equal amounts to be included in the adjusted profits of the member in that period and the subsequent 4 accounting periods.
(6) But where the adjustment amount is split between those accounting periods and the member leaves the multinational group before the end of the 4th subsequent accounting period, any amount of the adjustment amount that has not been included in the adjusted profits of the member for a previous accounting period is to be included in the adjusted profits of the member for the final accounting period in which it was a member of the group.
(7) The adjustment amount of a member of a multinational group in respect of an asset or liability subject to a relevant adjustment is the amount given by—
(a) subtracting the carrying value of the asset or liability immediately before the event that caused, or enabled, the adjustment to be made from the fair value of the asset or liability immediately after occurrence of that event, and
(b) if that event resulted in a non-qualifying gain or loss (within the meaning given by section 210(2)) for the member—
(i) in the case of a non-qualifying gain, reducing the result of paragraph (a) by the amount of that gain, or
(ii) in the case of a non-qualifying loss, increasing the result of paragraph (a) by the amount of that loss.
(8) Paragraph 2 of Schedule 15 (annual elections) applies to an election under this section.
(1) This section applies where, in an accounting period (“the current period”), the liability of a member of a multinational group to covered taxes for a prior accounting period (“the prior period”) as reflected in an information return, overseas information return or self-assessment return (see Schedule 14) has increased or decreased.
(1A) In the case of a prior accounting period for which there is no information return, overseas information return or self-assessment return, the reference to covered taxes being reflected in such a return is to the covered taxes as would have been reflected in such a return had there been one.
(2) Subsection (4) applies where—
(a) the relevant aggregate liability has increased, or
(b) the relevant aggregate liability has decreased and the decrease is to be treated as insignificant.
(3) Subsection (5) applies where the relevant aggregate liability has decreased, unless the decrease is to be treated as insignificant.
(4) Where this subsection applies, the covered tax balance of the member for the current period is to be adjusted so as to reflect the amount of the increase or decrease referred to in subsection (1), if not already reflected in that balance.
(5) Where this subsection applies—
(a) the following are to be recalculated for the prior period to take account of the decrease referred to in subsection (3)—
(i) the effective tax rate for the member and the other members of that group located in the same territory,
(ii) the top-up amounts that those members would have, and
(iii) if the liability to covered taxes has decreased because of a reduction of the member’s profits, its adjusted profits but only to the extent necessary to prevent the effective tax rate from decreasing,
(b) the adjusted profits of those members in subsequent accounting periods are to be adjusted in consequence of the decrease referred to in subsection (3), and the matters referred to in paragraph (a) recalculated accordingly, and
(c) if the amount of the decrease referred to in subsection (3) is reflected in the covered tax balance of the member for the current period, that balance is to be adjusted to exclude it.
(6) Section 206 applies to a recalculation under subsection (5).
(7) Where subsection (5) applies in relation to a decrease in liability to covered taxes that arises as a result of the member offsetting a loss in a later accounting period against profits in the prior period, the member is treated for the purposes of this Part—
(a) as having a deferred tax asset that arises in the later period that is equal to the amount offset multiplied by the lesser of—
(i) 15%, and
(ii) the tax rate that applied to the profits the amount was offset against, and
(b) as having used that asset in the prior accounting period.
(8) For the purposes of this section, a decrease of liability is to be treated as insignificant if—
(a) the relevant aggregate liability is not reduced by 1 million euros or more, and
(b) the filing member has made an election for decreases in the prior period to be treated as insignificant.
Paragraph 2 of Schedule 15 (annual elections) applies to an election under this subsection.
(9) In this section “the relevant aggregate liability”, in relation to the member referred to in subsection (1), means the aggregate liability to covered taxes of the standard members of the group in the territory of the member for the prior period.