218 Effect of rate changes to deferred tax expense
(1) Where—
(a) the rate of tax for a member of a multinational group changes in an accounting period,
(b) the change in rate is to some extent relevant, and
(c) the effect of the rate change would reduce the member’s covered tax balance in a previous accounting period if the deferred tax expense in that period were recalculated to take account of the change in the rate,
section 217 applies to so much of that reduction as reflects the extent of the change in rate that is relevant as it applies to a decrease in liability to covered taxes.
(2) Where—
(a) the rate of tax for a member of a multinational group changed in a previous accounting period,
(b) the change in rate is to some extent relevant,
(c) the member’s deferred tax expense for the current accounting period reflects the reversal of deferred tax assets or liabilities that were recognised in an accounting period prior to the rate change at a different rate, and
(d) the effect of the rate change would increase the member’s covered tax balance in a previous accounting period if the deferred tax expense in that period were recalculated to take account of the change in the rate,
section 217 applies to so much of that increase as reflects the extent of the change in rate that is relevant as it applies to a increase in liability to covered taxes.
(3) For the purposes of subsections (1) and (2), a change of a rate of tax is relevant to the extent that—
(a) in the case of a rate that is increasing, it reflects an increase from below 15% to the lesser of—
(i) the rate it is changed to, and
(ii) 15%, and
(b) in the case of a rate that is decreasing, it reflects a decrease from the lesser of—
(i) the previous rate, and
(ii) 15%.
(1) Where an amount of current tax expense included in the covered tax balance of a member of a multinational group for an accounting period is not paid before the end of the period of 3 years commencing with the last day of that accounting period, the following are to be recalculated excluding that amount—
(a) the effective tax rate for the member and the other members of that group located in the same territory, and
(b) the top-up amounts that those members would have.
(2) But subsection (1) does not apply unless the total of amounts included in the covered tax balance for that accounting period which are not paid before the end of that 3 year period exceeds 1 million euros.
(3) Section 206 applies to a recalculation under subsection (1).
(1) The top-up amount for an accounting period of a member of a multinational group that is an investment entity is, subject to subsection (2), determined by taking the following steps—
Step 1
Determine the adjusted profits (if any) of the entity for the period in accordance with Chapter 4. If the adjusted profits are nil or less, the top-up amount is nil. Otherwise, proceed to Step 2.
Step 2
Adjust the result of Step 1 in accordance with section 223 (to the extent applicable). If the adjusted result is nil, the top-up amount is nil. Otherwise, proceed to Step 3.
Step 3
Determine the substance-based income exclusion for the entity for the period (see section 221).
Step 4
Adjust the result of Step 3 in accordance with section 223 (to the extent applicable).
Step 5
Subtract the result of Step 4 from the result of Step 2. If the result is nil or less, the top-up amount is nil. Otherwise, proceed to Step 6.
Step 6
Determine the investment entity effective tax rate for the territory for the period (see section 222).
Step 7
Subtract the result of Step 6 from 15%. If the result is nil or less, the top-up amount is nil. Otherwise, proceed to Step 8.
Step 8
Multiply the result of Step 7 by the result of Step 5. This is the top-up amount for the entity , unless the entity has a positive undistributed income amount (see sections 214 and 215) for the period (in which case proceed to Step 9).
Step 9
Where this Step applies, the top-up amount for the entity is the sum of—
the result of Step 8, and
the positive undistributed income amount for the entity for the period multiplied by 15%.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) For the purposes of applying Chapter 4 in relation to an investment entity, the references in that Chapter to “standard members” of a multinational group are instead to members of the multinational group that are investment entities.
221 Substance based income exclusion for investment entity
(1) The substance based income exclusion for an investment entity is to be determined by adding together—
(a) the payroll carve-out amount of the entity, and
(b) the tangible asset carve-out amount of the entity,
(2) Section 195(4) applies to the determination of the payroll carve-out amount of the entity as it applies for members of the group that are not investment entities.
(3) Section 195(5) applies to the determination of the tangible asset carve-out amount of the entity as it applies for members of the group that are not investment entities.
(4) If the filing member for the group elects not to calculate the substance based income exclusion for the period in a self-assessment (see Schedule 14), the exclusion is nil.
(5) Paragraph 2 of Schedule 15 (annual elections) applies to an election under subsection (4).
The investment entity effective tax rate in a territory for an accounting period is determined by taking the following steps—
Step 1
Determine the adjusted profits made by each of the investment entities in the territory, as determined under Chapter 4 and adjusted under section 223.
Step 2
Subtract the sum of the losses of those investment entities that made a loss in that period from the sum of the profits of those investment entities that made a profit in that period.
Step 3
If the result of Step 2 is nil or less, the investment entity effective tax rate is to be treated as 15%. Otherwise, proceed to Step 4.
Step 4
Determine the covered tax balance of each such investment entity in accordance with Chapter 5.
Step 5
Adjust the amounts determined in Step 4 in accordance with section 223 (to the extent applicable).
Step 6
Add together the amounts determined in Step 5 that are adjusted positive covered tax balances.
Step 7
Add together the amounts determined in Step 5 that are adjusted negative covered tax balances.
Step 8
Subtract the result of Step 7 from the result of Step 6.
Step 9
Divide the result of Step 8 by the result of Step 2. This is the investment entity effective tax rate.
(1) In this section each of the following amounts is a “relevant amount”—
(a) the adjusted profits of an investment entity;
(b) a substance based income exclusion for an investment entity;
(c) the covered tax balance of an investment entity.
(2) An external holding adjustment is to be made to each relevant amount if a person that is not a member of the multinational group has ownership interests in the entity and no election under section 213 (tax transparency election) has been made in relation to the entity.
(3) An election adjustment is to be made to each relevant amount if an election under section 213 (tax transparency election) or 214 (taxable distribution method election) has been made in relation to the entity.
(4) Where both an external holding adjustment and an election adjustment are to be made, the election adjustment is to be made after the external holding adjustment (and accordingly is to be an adjustment of a relevant amount as adjusted by the external holding adjustment).
(5) An adjustment under this section is a reduction of the relevant amount by an adjustment amount.
(6) An adjustment amount is the adjustment factor for the type of adjustment multiplied by the relevant amount.
(7) The adjustment factor for an external holding adjustment is the value obtained by dividing—
(a) the amount of profits of the entity attributable to ownership interests held by persons that are not members of the group, , other than ownership interests in respect of which an amount has been excluded from the adjusted profits of the entity, by
(b) the total amount of adjusted profits of the entity determined under Chapter 4,
(but if the amount mentioned in paragraph (b) is nil, the adjustment factor is to be taken to be nil).
(8) The adjustment factor for an election adjustment is the value obtained by dividing—
(a) the amount of profits of the entity attributable to ownership interests held by the owners in relation to which an election has been made, , other than ownership interests in respect of which an amount has been excluded from the adjusted profits of the entity, by
(b) the total amount of profits of the entity attributable to ownership interests held by members of the group,
(but if the amount mentioned in paragraph (b) is nil, the adjustment factor is to be taken to be nil).
(9) The amount of profits attributable to ownership interests is to be determined in accordance with the method in section 201(2) and (3) for determining the amount of profits attributable to the ownership interests referred to in that section.
(10) Where the covered tax balance of an investment entity includes an amount allocated to it under section 179(1) or 180(3)(a) (allocation of tax imposed under controlled foreign company tax regimes), only so much of its covered tax balance as is not comprised of amounts allocated under those sections is subject to adjustment under this section.
224 Additional top-up amounts of investment entities
(1) Sections 202 to 207 apply in respect of a member of a multinational group that is an investment entity such that the member may have additional top-up amounts.
(2) For that purpose—
(a) references in those sections to the standard members of a multinational group in a territory apply as if they were references to the investment entities of the group in the territory;
(b) the reference in section 202(3) to Step 2 in section 132(1) applies as if it were a reference to Step 2 in section 222;
(c) sections 204(4) and 207(2) do not apply.
225 Attribution of top-up amounts and additional top-up amounts to responsible member
(1) In this section “top-up amount” includes an additional top-up amount determined under section 224.
(2) Section 200 applies to the attribution of a top-up amount of a member of a multinational group that is an investment entity (“the relevant member”) to a responsible member as it applies to a top-up amount of any other member of the group.
(3) Section 201 applies for the purpose of determining the inclusion ratio of the responsible member, but—
(a) in carrying out Step 1 in section 201(1)—
(i) the adjusted profits of the entity determined in that Step are to be further adjusted in accordance with section 223 (to the extent applicable);
(ii) if an election under section 214 (taxable distribution method election) has been made in relation to the entity, the adjusted profits of the entity are to be treated as including the undistributed income amount for the entity determined under section 215, and
(b) subsection (4) of that section applies whether or not the relevant member is a flow-through entity (so that entities that are not members of the group are always ignored).
(1) For the purposes of this Part “joint venture group” means a joint venture parent of a qualifying multinational group and its joint venture subsidiaries (together its “members”).
(2) An entity is a joint venture parent of a multinational group for an accounting period of that entity if—
(a) the financial results of that entity for all or any part of that period are reported under the equity method in the consolidated financial statements of the ultimate parent of that group,
(b) the ultimate parent holds at least 50% of the ownership interests in the entity at any time in that period,
(c) the entity is not the ultimate parent of a multinational group that meets condition A in section 129(2) for that accounting period (revenue threshold exceeded in at least 2 of previous 4 accounting periods),
(d) the entity is not an excluded entity,
(e) the entity is not an entity owned by an excluded entity—
(i) that only carries out activities that are ancillary to the activities of the excluded entity,
(ii) whose activities consist, wholly or almost wholly, of the holding of assets or the investment of funds for the benefit of the excluded entity, or
(iii) whose income is, wholly or almost wholly, excluded dividends or excluded equity gains (or a mixture of both),
(f) the multinational group referred to in paragraph (a) is not composed exclusively of excluded entities, and
(g) the entity is not a joint venture subsidiary in relation to another joint venture parent.
(3) An entity is a joint venture subsidiary of a joint venture parent if its assets liabilities, income, expenses and cash flows are included in the consolidated financial statements of the joint venture parent.
(4) Where the main entity of a permanent establishment is a joint venture parent of a multinational group or a joint venture subsidiary, that permanent establishment is to be treated as a separate joint venture subsidiary of the same multinational group joint venture group.
(1) This Part applies to a joint venture group as it applies to a multinational group, but in their application by virtue of this subsection Chapters 3 to 6 and 8 of this Part , this Chapter other than this section and section 226 and Schedules 16 and 16A have effect as if—
(a) references to the ultimate parent were to the joint venture parent of that group,
(b) references to a member of a multinational group were to the members of the joint venture group, and.
(c) references to the filing member were to the filing member of each respective multinational group whose ultimate parent holds at least 50% of the ownership interests in the joint venture parent.
(2) For the purposes of the other provisions of this Part (in its application by virtue of subsection (1)), the members of the joint venture group are treated as members of each multinational group whose ultimate parent directly or indirectly holds at least 50% of the ownership interests in the joint venture parent.
(3) But (in the application of this Part by virtue of subsection (1)) no member of the joint venture group is to be regarded as an intermediate parent member or a partially owned parent member of the joint venture group.
(1) For the purposes of this Part, a member of a multinational group is a “minority owned member” if—
(a) the ultimate parent holds no more than 30% of the ownership interests in that member, and
(b) the member is not an investment entity.
(2) If—
(a) a minority owned member (“M”) holds (directly or indirectly) ownership interests in another minority owned member, and
(b) no other minority owned member holds (directly or indirectly) ownership interests in M,
M is the minority owned parent of a minority subgroup, and the minority owned members in which M has ownership interests are also members of that group.
(3) For the purpose of determining the effective tax rate and top-up amounts of members of a minority subgroup, this Part applies as if references to standard members of a multinational group were instead to members of that subgroup.
(4) For the purposes of determining the effective tax rate and top-up amounts of a minority owned member that is not a member of a minority subgroup, this Part applies as if references to standard members of a multinational group were instead to that member.
(5) But neither subsection (3) nor (4) applies to the reference to “standard member” in section 199(2A) (election to treat top-up amounts of relevant members as nil).
(1) Where two or more consolidated groups form part of a multi-parent group—
(a) those groups (“the constituent groups”) are to be treated as a single multinational group (and accordingly multinational top-up tax will be charged in relation to that single group), and
(b) the group’s members include (as well as the members who are members as a result of section 126) entities who would not be a member of any of the constituent groups but in which a controlling interest is held by one or more members of the constituent groups,
(2) This Part has effect, in its application to a multi-parent group, as if—
(a) references (however framed) to the consolidated financial statements of the ultimate parent were to the multi-parent consolidated financial statements,
(b) references to the ultimate parent were to all of the ultimate parents of the constituent groups, other than the reference in section 128(3)(b) (responsible members).
(3) Where ownership interests in an intermediate parent member of a multi-parent group are held by more than one of the ultimate parents of the multi-parent group, section 128(3) has effect as if for paragraph (b) there were substituted—
(b) any of the ultimate parents of the constituent groups that have ownership interest in the intermediate parent member are not subject to Pillar Two IIR tax, and
.
(4) Where an intermediate parent member of a multi-parent group is not a member of any of the constituent groups, section 128 has effect in relation to it as if—
(a) paragraph (b) of subsection (3) were omitted, and
(b) for subsection (4) there were substituted—
(4) Such an intermediate parent member is responsible for each member of the group it has an ownership interest provided the conditions in subsection (4A) are met in relation to that member (“the owned member”).
(4A) Those conditions are that—
(a) the owned member is not located in the same territory as the intermediate parent member, and
(b) any of the ultimate parents of the constituent groups that has an ownership interest in the owned member is not subject to Pillar Two IIR tax.
(5) Unless a nomination under paragraph 2(2) of Schedule 14 is in force in relation to a multi-parent group—
(a) the ultimate parents of the constituent groups are jointly the filing member of the multi-parent group, and
(b) any liability for a penalty for a failure to comply with the obligations of the filing member is the joint and several liability of those ultimate parents.
(6) For the purposes of this section—
two or more consolidated groups form part of a “multi-parent group” if—
the ultimate parents of those groups are party to an arrangement that is a stapled structure or a dual-listed arrangement, and
at least one of the controlled entities of those groups is not in the same territory as another of the other controlled entities of those groups;
“controlled entity” in relation to two or more consolidated groups means—
a member of any of those groups, and
any entity, other than a member of any of those groups, in which a controlling interest is held by one or more members of those groups;
“stapled structure” means an arrangement entered into by two or more ultimate parents of consolidated groups where the following conditions are met—
as a result of the arrangements, 50% or more of the ownership Interests in the ultimate parents of the consolidated groups—
are by reason of form of ownership, restrictions on transfer, or other terms or conditions combined with each other, and
cannot be transferred or traded independently;
if the combined ownership Interests are listed, they are quoted at a single price;
one of those ultimate parents prepares, or together those parents prepare, consolidated financial statements—
in which the assets, liabilities, income, expenses and cash flows of the controlled entities of those consolidated groups are presented together as those of a single economic unit, and
that are required by a regulatory regime to be externally audited;
“dual-listed arrangement” means an arrangement entered into by two or more ultimate parents of consolidated groups to combine their businesses by contract (rather than by the holding of ownership interests in one another) where the following conditions are met—
the arrangements provide for the ultimate parents of the groups to make distributions (with respect to dividends and in liquidation) to their shareholders based on a fixed ratio,
the arrangements provide for the management of those businesses as a single economic entity while retaining their separate legal identities,
ownership interests in the ultimate parents are quoted, traded or transferred independently in different capital markets, and
one of those ultimate parents prepares, or together those parents prepare, consolidated financial statements—
in which the assets, liabilities, income, expenses and cash flows of the controlled entities of those consolidated groups are presented together as those of a single economic unit, and
that are required by a regulatory regime to be externally audited;
“multi-parent consolidated financial statements” means—
in relation to a multi-parent group that is a multi-parent group as a result of a stapled structure, the consolidated financial statements referred to in paragraph (c) of the definition of stapled structure, or
in relation to a multi-parent group that is a multi-parent group as a result of a dual-listed arrangement, the consolidated financial statements referred to in paragraph (d) of the definition of dual-listed arrangement.
(1) The top-up amount and additional top-up amounts of a member (“M”) of a multinational group for an accounting period are “potentially undertaxed” if—
(a) M is the ultimate parent or is located in the same territory as the ultimate parent, or
(b) the ultimate parent is not a responsible member.
(2) Subsection (1) does not apply if—
(a) the ultimate parent is not a responsible member,
(b) none of the ownership interests of the ultimate parent in M are direct ownership interests, and
(c) every indirect ownership interest the ultimate parent has in M is derived from an ownership interest the ultimate parent has in a responsible member.
(3) Subsection (1) also does not apply if—
(a) the ultimate parent is located in a territory in which a DIIR is in force and is a responsible member, and
(b) M is located in the same territory as the ultimate parent.
(4) This section and section 229B do not apply to members of a joint venture group (but see section 229I for alternative provision).
(1) A member of a multinational group has an untaxed amount if conditions A and B are met.
(2) Condition A is that the top-up amount and additional top-up amounts of the member are potentially undertaxed.
(3) Condition B is that the sum of amounts attributed under Chapter 7 to responsible members in respect of the member’s top-up amount and additional top-up amounts is less than the sum of the member’s top-up amount and additional top-up amounts.
(4) The untaxed amount is the amount given by subtracting—
(a) the sum of amounts attributed under Chapter 7 to responsible members in respect of the member’s top-up amount and additional top-up amounts, from
(b) the sum of the member’s top-up amount and additional top-up amounts.
(1) An untaxed amount of a member of a multinational group is to be allocated to qualifying members of the group located in the United Kingdom by—
(a) first, determining the amount (“the UK proportion”) of the untaxed amount to be allocated to the group in the United Kingdom in accordance with section 229D, and
(b) then, allocating an amount of the UK proportion to each qualifying member located in the United Kingdom in accordance with section 229E.
(2) But no allocation is to be made under subsection (1) if in section 229D(1) the results of both Step 2 and Step 5 are nil.
(3) For the purposes of this Chapter, a member of a multinational group is qualifying unless it is—
(a) an investment entity, ...
(b) a member of a joint venture group , or
(c) a securitisation company within the meaning of the Taxation of Securitisation Companies Regulations 2006 (S.I. 2006/3296).
(1) Take the following steps to determine the UK proportion of an untaxed amount of a member of a multinational group—
Step 1
Determine the number of employees of qualifying members of the group located in the United Kingdom for the accounting period to which the untaxed amount relates (“the relevant period”).
Step 2
Determine the total number of employees in the relevant period of qualifying members of the group located in territories (including the United Kingdom) in which a qualifying undertaxed profits tax applies to the untaxed amount.
Step 3
Divide the result of Step 1 by the result of Step 2.
Step 4
Determine the value of tangible fixed assets of the qualifying members of the group located in the United Kingdom for the relevant period.
Step 5
Determine the value of tangible fixed assets of the qualifying members of the group located in territories (including the United Kingdom) in which a qualifying undertaxed profits tax applies to the untaxed amount.
Step 6
Divide the result of Step 4 by the result of Step 5.
Step 7
Add together the results of Step 3 and Step 6 and divide that sum by 2.
Step 8
The UK proportion of the untaxed amount is—
if the nil asset value condition is met, the untaxed amount multiplied by the result of Step 3;
if the nil employee condition is met, the untaxed amount multiplied by the result of Step 6;
in any other case, the untaxed amount multiplied by the result of Step 7.
(2) For the purposes of subsection (1)—
(a) the “nil asset value condition” is met if—
(i) the result of Step 5 is nil, but
(ii) the result of Step 2 is not nil;
(b) the “nil employee condition” is met if—
(i) the result of Step 2 is nil, but
(ii) the result of Step 5 is not nil.
(3) A qualifying undertaxed profits tax applies in a territory in relation to an untaxed amount if—
(a) a qualifying undertaxed profits tax is in force in that territory for the relevant period, and
(b) the provisions of that tax result in a proportion of the untaxed amount (however described for the purposes of that tax) that is greater than nil being allocated to the territory.
(4) See sections 229G and 229H for how to determine the number of employees and the value of tangible fixed assets of a qualifying member of a multinational group.
(1) Take the following steps to determine how much of an untaxed amount is to be allocated to each qualifying member located in the United Kingdom—
Step 1
Determine the number of employees of the member in the accounting period (“the relevant period”) to which the untaxed amount relates.
Step 2
Determine the total number of employees for the relevant period of qualifying members of the group located in the United Kingdom.
Step 3
Divide the result of Step 1 by the result of Step 2.
Step 4
Determine the value of tangible fixed assets of the member for the relevant period.
Step 5
Determine the value of tangible fixed assets for the relevant period of the qualifying members of the group located in the United Kingdom.
Step 6
Divide the result of Step 4 by the result of Step 5.
Step 7
Add together the results of Step 3 and Step 6 and divide that sum by 2.
Step 8
The untaxed amount to be allocated to the member is—
if the nil asset value condition is met, the UK proportion multiplied by the result of Step 3;
if the nil employee condition is met, the UK proportion multiplied by the result of Step 6;
in any other case, the UK proportion multiplied by the result of Step 7.
(2) For the purposes of subsection (1)—
(a) the “nil asset value condition” is met if—
(i) the result of Step 5 is nil, but
(ii) the result of Step 2 is not nil;
(b) the “nil employee condition” is met if—
(i) the result of Step 2 is nil, but
(ii) the result of Step 5 is not nil.
(3) This section is subject to section 229F.
229F Election to make one member of a group liable for untaxed amounts
(1) The filing member of the group may elect for an accounting period that—
(a) section 229E does not apply, and
(b) instead, a member of the group specified in the election is to be allocated the whole of the UK proportion of each untaxed amount that would be otherwise be allocated between the qualifying members of the group located in the United Kingdom.
(2) A member of the group may only be specified in the election if—
(a) the member is located in the United Kingdom, and
(b) the member has consented to the election.
(3) Paragraph 2 of Schedule 15 (annual elections) applies to an election under this section, and has effect for that purpose as if references to an information return or overseas return notification were to a self-assessment return or below-threshold notification.
(1) For the purposes of this Chapter, the number of employees of a qualifying member of a multinational group in an accounting period is the full-time equivalent employee number for that member for that period.
(2) To determine the full-time equivalent employee number for a member of a multinational group for an accounting period take the following steps—
Step 1
Determine the number of full-time employees of that member that were full-time employees for the whole of that period.
Step 2
Determine, for each employee of that member for that period who is not a full-time employee for the whole of that period (whether they were part-time employees or were not employed for the whole of the period), such fraction as is just and reasonable.
Step 3
Add together the number determined under Step 1 and the fractions determined under Step 2.
If the member was a member of the group throughout the whole of the period, the result of this Step is the full-time equivalent employee number.
Step 4
Where the member was not a member of the group for the whole period, make such adjustments to the result of Step 3 as is just and reasonable to arrive at a full-time equivalent employee number that reflects the number of employees of the member in the period for which it was a member of the group.
For the purpose of this Step, ignore section 208(2) (members joining or leaving group in an accounting period treated as members for the whole of the period).
(3) For the purposes of this section “employee”, in relation to a member of a multinational group, means a person whose employment costs are met by that member (whether or not the person’s activities are carried on in the territory of the member) as recorded in appropriate financial statements of the member and who—
(a) is regarded as an employee under the law of the territory in which the member is located, or
(b) participates in the ordinary operating activities of the member of the group (including on a part-time basis).
(4) For the purposes of subsection (3) financial statements are “appropriate” only if the basis on which they are prepared is consistent for all members of the group (wherever located).
(5) For the purposes of section 229D (but not for the purposes of section 229E), where a member of a multinational group is a flow-through entity, employees of the entity—
(a) are to be treated as employees of members of the group that are not flow-through entities that are located in the territory in which the flow-through entity was created, or
(b) where there are no such members in that territory, are ignored for the purposes of this Chapter.
(6) Subsection (5) does not apply to employees of a flow-through entity that are regarded for the purposes of this section as employees of a permanent establishment of the entity.
(7) Where a permanent establishment does not prepare separate financial accounts, the reference in subsection (3) to employment costs recorded in financial statements is to the employment costs that would have been so recorded had such statements been prepared (and those costs are to be excluded from the financial statements of the main entity for the purposes of applying this section).
(1) To determine the value of tangible fixed assets of a qualifying member of a multinational group for an accounting period—
(a) add together—
(i) the sum of the values of each tangible fixed asset held by the member at the start of the period, as those values are recorded in the member’s financial statements, and
(ii) the sum of the values of each tangible fixed asset held by the member at the end of the period, as those values are recorded in the member’s financial statements, and
(b) divide the result of paragraph (a) by 2.
(2) For the purposes of subsection (1) financial statements are “appropriate” only if the basis on which they are prepared is consistent for all members of the group (wherever located).
(3) In each case the value of a tangible fixed asset is to include accumulated depreciation, depletion or impairment.
(4) If the member is not a member of the group at the start of the period, or at the end of the period, the sum of the values of its tangible fixed assets at that time is to be treated as nil.
(5) For the purpose of subsection (4), ignore section 208(2) (members joining or leaving group in an accounting period treated as members for the whole of the period).
(6) Where a permanent establishment does not prepare separate financial accounts, the values to be used are those that would have been recorded in those accounts had they been prepared (and those values are to be excluded from the financial statements of the main entity for the purposes of applying this section).
(7) For the purposes of section 229D (but not for the purposes of section 229E), tangible fixed assets held by a member of the group that is a flow-through entity—
(a) are to be treated as held by members of the group that are not flow-through entities that are located in the territory in which the flow-through entity was created, or
(b) where there are no such members in that territory, are to be ignored for the purposes of this Chapter.
(8) Subsection (7) does not apply to assets of a flow-through entity that are held by a permanent establishment of the entity.
(9) For the purposes of this Chapter “tangible fixed assets” means all tangible assets wherever located, other than cash or cash equivalents or financial assets.
(1) This section applies where—
(a) the ultimate parent of a multinational group is not subject to Pillar Two IIR tax for an accounting period,
(b) the group includes a joint venture group, and
(c) the members of the joint venture group are undertaxed in relation to the multinational group for that period.
(2) The members of a joint venture group are undertaxed in relation to a multinational group if—
(a) the sum of amounts attributed to responsible members of the multinational group under Chapter 7 in respect of members of the joint venture group’s top-up amount and additional top-up amounts, is less than
(b) the sum of such amounts in respect of the joint venture group that would be attributed under that Chapter to the ultimate parent of the multinational group if it were subject to Pillar Two IIR tax.
(3) The amount given by subtracting the amounts mentioned in paragraph (a) of subsection (2) from the amounts mentioned in paragraph (b) of that subsection is an untaxed amount of the joint venture group in relation to the multinational group.
(4) Sections 229C to 229F (allocation of untaxed amounts) apply for the purposes of allocating an untaxed amount of a joint venture group in relation to a multinational group to qualifying members of that multinational group as they apply to the allocation of an untaxed amount of a member of the multinational group to those members.
(1) For the purpose of determining untaxed amounts of a member of a multinational group who is located in a territory in which a DIIR is in force, references in this Chapter to a responsible member are to be interpreted as if section 128 (responsible members) had effect with the following modifications—
(a) in subsection (2) omit “that are not located in the territory the ultimate parent is located in”;
(b) in subsection (3)(c), at the beginning insert “the intermediate parent,”;
(c) in subsection (4) omit “that are not located in the territory it is located in”;
(d) in subsection (5)(b), at the beginning insert “it or”;
(e) in subsection (6) omit “that are not located in the same territory it is located in”;
but this is subject to subsection (2).
(2) For the purpose of determining whether the top-up amount and additional top-up amounts of a member (“M”) of a multinational group for an accounting period are “potentially undertaxed”, a member of the group which—
(a) is located in the same territory as M, and
(b) would apart from this subsection be a responsible member,
is to be regarded for all purposes of this Chapter as not being a responsible member unless a DIIR is in force for the accounting period in that territory.
(3) In this section “DIIR” means a tax which—
(a) implements, in a Pillar Two territory, rules relating to top-up tax under the IIR (within the meaning of the Pillar Two rules), and
(b) is designed so that tax charged under it is not limited to tax in respect of members who are located outside that territory.
230 Meaning of terms and concepts used in this Part
(1) The provisions of this Chapter define or otherwise explain terms and concepts used in this Part.
(2) Unless the contrary appears, those provisions have effect for the purposes of this Part.
(1) In this Part “entity” means—
(a) a company, or
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(d) any ... arrangement that results in the preparation of separate financial accounts in respect of the activities carried out under the arrangement (such as a partnership or trust).
(2) An entity which is, or is part of, a national, regional or local government is not to be regarded as an entity for the purposes of this Part.
(3) Sections 232 to 238 make further provision about entities including provision—
(a) treating permanent establishments as entities,
(b) defining various particular types of entities, and
(c) about when entities are “tax transparent”.
(1) A “permanent establishment” of an entity (“the main entity”) means a place of business of the main entity ...—
(a) that is situated in a territory other than the territory in which the main entity is located, ...
(aa) any profits in relation to which are reflected in the financial statements of the main entity, and
(b) that meets any of the conditions in paragraphs (a) to (d) of subsection (2).
(2) Those conditions are—
(a) that the place of business is situated in a territory where it is treated as a permanent establishment in accordance with an applicable tax treaty in force provided that such territory taxes the income attributable to it in accordance with a provision similar to Article 7 of the OECD tax model;
(b) that the place of business is situated in a territory where there is no applicable tax treaty in force and the territory, under its domestic law, taxes the income attributable to such place of business on a net basis similar to the manner in which it taxes its own tax residents;
(c) that the place of business is situated in a territory that has no corporate income tax system, but would be treated as a permanent establishment in accordance with the OECD tax model provided that such territory would have had the right to tax the income attributable to it in accordance with Article 7 of that model;
(d) that—
(i) the place of business does not meet any of the conditions in paragraphs (a) to (c), and
(ii) the income attributable to the place of business’s operations is exempted from tax by the territory of the main entity or, where the main entity is a flow-through entity, by the territory in which the reference entity (within the meaning of section 168) is located.
(2A) For the purposes of subsection (1)(a)—
(a) section 240(2) (flow-through entities treated as stateless) is to be disregarded, and
(b) a flow-through entity that would otherwise be a stateless entity under section 240(2) is instead treated as located in the territory in which it is created.
(3) For the purposes of this Part, a permanent establishment is to be treated as an entity distinct from the entity it is a permanent establishment of (whether that would otherwise be the case or not).
(3A) But an entity with a permanent establishment is not to be taken as having ownership interests in that permanent establishment.
(4) In this section “place of business” means a place of business as construed in accordance with the OECD tax model, and includes a deemed place of business for the purpose of that model, a tax treaty or the domestic law of a territory.
(5) In this Part, a reference to “the main entity” in relation to a permanent establishment is to be construed in accordance with this section.
(6) See also section 232ZA (modifications that apply where legal main entity is distinct from main entity).
(1) Where a permanent establishment has a legal main entity that is distinct from the main entity, this Part applies with the following modifications in relation to the permanent establishment.
(2) In section 127 (excluded entities), in subsection (5)(a) (definition of qualifying non-profit subsidiary), the reference to the main entity is to be read as a reference to the main entity and each legal main entity.
(3) In section 135 (underlying profits of permament establishments)—
(a) in subsection (1)(b) (underlying profits of permanent establishment that does not have separate financial accounts), the reference to the main entity is to be read as a reference to whichever of the main entity and the legal main entities is relevant to the attribution exercise under section 159;
(b) in subsection (3) (permanent establishments within section 232(2)(d)), the references to the main entity are to be read as references to the main entity or any legal main entity;
(c) in subsection (4) (no double counting between permanent establishment and main entity), the reference to the main entity is to be read as a reference to the main entity or any legal main entity.
(4) In section 159 (permanent establishment income and expense attribution), the references to the main entity are to be read as references to whichever of the main entity and the legal main entities is relevant to the attribution exercise under the subsection in question.
(5) In section 198 (eligible payroll costs etc: permanent establishments), in subsection (5) (double counting), the references to the main entity are to be read as references to any of the main entity and the legal main entities.
(6) In section 236 (investment funds and investment entities), in subsection (1)(f)(ii) (regulatory regime condition), the reference to the main entity is to be read as a reference to a legal main entity.
(7) In section 253 (disqualified and qualified refundable imputation taxes), in subsection (2)(a)(ii), the reference to the main entity is to be read as a reference to a legal main entity.
(8) For the purposes of this section a “legal main entity” in relation to a permanent establishment means—
(a) in the case of a permanent establishment within section 232(2)(a), an entity of which it is regarded as being a permanent establishment in accordance with an applicable tax treaty;
(b) in the case of a permanent establishment within section 232(2)(b), an entity of which it is regarded as being a permanent establishment under the domestic law of the territory in which the permanent establishment is situated;
(c) in the case of a permanent establishment within section 232(2)(c), an entity of which it would be regarded as being a permanent establishment in accordance with Article 7 of the OECD tax model;
(d) in the case of a permanent establishment within section 232(2)(d), any reference entity (within the meaning of section 168) by reference to which the condition in section 232(2)(d)(ii) is satisfied.
(1) A partnership is to be regarded for the purposes of this Part as continuing to be the same partnership regardless of a change in membership, provided that a person who was a member before the change remains a member after the change.
(2) Where—
(a) ownership interests in a partnership are transferred to more than one individual or entity, and
(b) the result is a partnership of which none of the original partners are members,
that new partnership is to be treated as if it were the same partnership as the old partnership.
(3) Where a partnership is otherwise dissolved in an accounting period—
(a) the partnership is to be treated as a continuing entity for the purpose of dealing with its rights and obligations under this Part in respect of that accounting period and previous accounting periods, and
(b) for the purposes of Schedule 14 (administration) each person who was a partner in that accounting period (before the partnership’s dissolution) is to be treated as a partner of the continuing entity.
(4) The reference in subsection (2) to a transfer of ownership interests includes any series of transactions having the effect of a transfer (including by way of the cancellation of interests and the issue of corresponding interests).
(1) For the purposes of this Part—
(a) a protected cell company is not to be regarded as an entity, and
(b) each part of a protected cell company is to be treated as an entity distinct from the others.
(2) Accordingly—
(a) the fact an entity is a part of a protected cell company is irrelevant to determining whether it is a member of a consolidated group, and
(b) the accounts of the protected cell company are not to be regarded as consolidated financial statements.
(3) In this Part—
“protected cell company” means a protected cell company incorporated under Part 4 of the Risk Transformation Regulations 2017 (S.I. 2017/1212);
a “part” of a protected cell company means its core or a cell of the company;
“core” and “cell” have the meaning they have in those regulations.
234 Governmental, international and non-profit entities
(1) An entity is a “governmental entity” if—
(a) it is wholly owned by a national, regional or local government,
(b) it has the principal purpose of—
(i) carrying on a public function of that government, or
(ii) managing or investing the assets of that government through investment activities (such as the making and holding of investments or asset management),
(c) it is accountable to that government on its overall performance and provides annual information reporting to that government,
(d) it does not carry on a trade or business, other than an investment business described in paragraph (b)(ii),
(e) its assets vest in that government on its dissolution, and
(f) it does not make distributions of its profits to, or for the benefit of, any person other than that government.
(2) “International organisation” means an intergovernmental or supranational organisation, or an entity that acts for, is part of, or is wholly owned by such an organisation, provided—
(a) the organisation is comprised primarily of governments,
(b) the organisation has a headquarters, or privileges or immunities in respect of its establishments, in the territory in which it is established, and
(c) its governing documents, or the law of that territory, preclude the distribution of its profits for the benefit of private persons.
(3) An entity is a “non-profit organisation” if—
(a) it is established and operated in the territory it is located in—
(i) exclusively for religious, charitable, scientific, artistic, cultural, athletic, education, or other similar purposes, or
(ii) as a professional organisation, business league, chamber of commerce, labour organisation, agricultural or horticultural organisation, civic league or an organisation operated exclusively for the promotion of social welfare, and
(b) it meets all of the conditions mentioned in subsection (4).
(4) Those conditions are that—
(a) substantially all of the income from the activities it carries out for the purposes it was established is exempt from income tax in the territory where it is located,
(b) it has no shareholders or members who have any interest in its income or assets,
(c) the income or assets of the entity may not be distributed to, or applied for the benefit of, a private person or non-charitable entity other than—
(i) pursuant to the conduct of the entity in carrying out activities for the purposes for which it was established,
(ii) as payment of reasonable compensation for services rendered or for the use of property or capital, or
(iii) as payment representing the fair market value of property which the entity has purchased,
(d) upon termination, liquidation or dissolution of the entity, all of its assets must be distributed or revert to a non-profit organisation or to a governmental entity of the territory in which the entity is located, and
(e) the entity does not carry on a trade or business that is not directly related to the purposes for which it was established.
(1) An entity is a “pension fund” if—
(a) it is an entity that is established and operated in a territory exclusively or almost exclusively to administer or provide retirement benefits and ancillary or incidental benefits to individuals where—
(i) the entity is regulated as such in that territory, or
(ii) those benefits are secured or otherwise protected by national regulations and funded by a pool of assets held through a fiduciary arrangement or trust to secure the fulfilment of the corresponding pension obligations against a case of insolvency of the entity or the group the entity is a member of, or
(b) it is a pension services entity.
(2) An entity is a “pension services entity” if it is an entity established and operated exclusively or almost exclusively—
(a) to invest funds for the benefit of an entity falling with the description in subsection (1)(a), or
(b) to carry out activities that are ancillary to the regulated activities carried out by an entity falling with that description, provided that the entities are members of the same group.
(1) An “investment fund” is an entity that meets all of the following conditions—
(a) it is designed to pool assets (which may be financial and non-financial) from a number of investors, at least some of which are not connected;
(b) it invests in accordance with a defined investment policy;
(c) it operates with a view to allowing its investors to reduce transaction, research, and analytical costs, or to spread risk collectively;
(d) it is primarily designed to generate investment income or gains, or protection against a particular or general event or outcome;
(e) investors have rights to the assets of the fund, or to income earned on those assets, based on the contributions made by those investors;
(f) the entity, or its management, is subject to a regulatory regime, that includes anti-money laundering and investor protection regulation, of—
(i) the territory in which the entity is established or managed, or
(ii) in the case of a permanent establishment, the territory in which the main entity is established or managed;
(g) it is managed by an investment management professional on behalf of the investors.
(2) An “insurance investment entity” is an entity that meets all of the following conditions—
(a) the entity is not an investment fund under subsection (1), but would be an investment fund if it were designed to pool assets from more than one investor or those investors were required not to be connected;
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) the income or gains the entity is designed to generate are intended to offset liabilities under insurance or annuity contracts;
(d) no person other than members of the group has ownership interests in the entity;
(e) regulated entities hold 100% of the ownership interests in it (see section 244 for how to calculate this).
(2A) An entity is a regulated entity if—
(a) the entity is subject to a regulatory regime in the territory in which it is established or managed, and
(b) that regime is specific to persons engaged in the business of entering into insurance or annuity contracts or of performing activities ancillary to such business.
(3) An entity is an investment entity if it is—
(a) an investment fund,
(b) a UK REIT or an overseas REIT equivalent,
(c) an entity—
(i) that is 95% owned by one or more entities falling within paragraph (a) or (b), and
(ii) whose activities consist, wholly or almost wholly, of the holding of assets or the investment of funds for the benefit of those owners,
(d) an entity—
(i) that is 85% owned by one or more entities falling within paragraph (a) or (b), and
(ii) whose income is wholly or almost wholly excluded dividends or excluded equity gains (or a mixture of both), or
(e) an insurance investment entity.
(4) For the purposes of subsection (3) references to an entity being 95% or 85% owned by one or entities falling within paragraph (a) or (b) of that subsection is to those entities together having at least that percentage of the ownership interests in that entity.
237 Intermediate and partially-owned parent members
(1) A member of a multinational group is a partially-owned parent member of that group if—
(a) it is not a permanent establishment, investment entity or the ultimate parent,
(b) it has—
(i) a direct or indirect ownership interest in another member of the group, or
(ii) a permanent establishment, and
(c) more than 20% of the ownership interests that represent an entitlement to a share of the profits of the member are held by persons that are not members of the group.
(2) A member of a multinational group is an intermediate parent member of the group if—
(a) it is not a permanent establishment, investment entity, a partially-owned parent member or the ultimate parent, and
(b) it has—
(i) a direct or indirect ownership interest in another member of the group, or
(ii) a permanent establishment.
An entity is regarded as tax transparent in a territory to the extent that the territory treats the income, expenditure, profits or losses of the entity, for the purposes of covered taxes, as the income, expenditure, profits or losses of the direct owner of the entity in proportion to its interest in the entity.
(1) The normal rule for determining, for the purposes of this Part, the territory in which an entity is located is that—
(a) if it is tax resident in a territory based on its place of management or place of creation, or based on similar criteria, it is located in that territory, or
(b) if it is not tax resident in any territory based on such criteria, it is located in the territory in which it was created.
(2) But subsection (1) does not apply to a flow-through entity or a permanent establishment (as to which, see section 240).
(3) Where, in an accounting period, an entity is tax resident based on its place of management, place of creation or similar criteria in more than one territory and—
(a) all of those territories are party to a tax treaty, and
(b) for the purposes of the treaty the entity is deemed resident in one of those territories,
the entity is treated as located in that territory for that period.
(4) Otherwise, where an entity is tax resident in an accounting period based on its place of management, place of creation or similar criteria in more than one territory—
(a) if the entity has accrued more covered taxes in an accounting period in one of those territories than in the others, ignoring any taxes accrued in accordance with a controlled foreign company tax regime, it is to be treated as located in that territory for that period,
(b) if paragraph (a) does not apply and the entity has a greater qualifying substance based income exclusion amount in one of those territories than in the others, it is to be treated as located in that territory for that period, or
(c) if neither paragraph (a) nor (b) applies—
(i) if the entity is the ultimate parent of a multinational group, it is to be treated as being located in the place where it was created for that period, or
(ii) otherwise, the entity is a stateless entity for that period.
(5) For the purposes of subsection (4)(b) “the qualifying substance based income exclusion amount” for an entity for a period in a territory is—
(a) if the substance based income exclusion is calculated for that period for that territory, the sum of the payroll carve-out amount and the tangible asset carve-out amount as would be determined under section 195(1) for the entity for that period if the entity were located in that territory, and
(b) if the substance based income exclusion is not calculated for that period for that territory, nil.
(6) Where—
(a) an entity is not (ignoring this subsection) subject to Pillar Two IIR tax within the meaning of section 128,
(b) it is tax resident based on its place of management, place of creation or similar criteria in the United Kingdom,
(c) as a result of the application of subsection ... (4) it is treated as not being located in the United Kingdom, and
(d) if it were located in the United Kingdom, it would be a responsible member of a multinational group,
the entity is instead to be treated as located in the United Kingdom for the purposes of sections 122 , 128 and 129 of this Part (but not otherwise).
(7) For the purposes of this Part—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) where an entity’s location changes during an accounting period, it is to be treated as being located in the territory it was located, or was treated as being located, at the start of that period.
(8) As regards stateless entities see also section 132(3)(b) (stateless member of group treated as located in its own nominal territory).
240 Location of flow-through entities and permanent establishments
(1) Where a flow-through entity is the ultimate parent of a multinational group, or would be a responsible member of a multinational group if the entity were located in the territory in which it is created, the entity is treated as located in the territory in which it is created.
(2) Any other flow-through entity is a stateless entity.
(3) A permanent establishment that is a permanent establishment falling within paragraph (a) of section 232(2) (entity treated as permanent establishment in accordance with tax treaty) is located in the territory where it is treated as a permanent establishment in accordance with the tax treaty in accordance with which it is treated as a permanent establishment.
(4) A permanent establishment that is a permanent establishment falling within paragraph (b) of section 232(2) (permanent establishment taxed on similar basis to residents in absence of tax treaty) is located in the territory where it is subject to net basis taxation based on its business presence.
(5) A permanent establishment that is a a permanent establishment falling within paragraph (c) of section 232(2) (permanent establishment located in territory without corporate income tax) is located in the territory in which it is situated.
(6) A permanent establishment that is a permanent establishment falling within paragraph (d) of section 232(2) (other permanent establishments) is a stateless entity.
(1) In this Part “Pillar Two territory” means the United Kingdom and every other territory specified as such in , or in accordance with, regulations made by the Treasury.
(1A) Regulations may provide for the specification of a territory to be made by notice published by the Commissioners for His Majesty’s Revenue and Customs in accordance with the regulations.
(2) Regulations , or a notice, may only specify a territory as a Pillar Two territory if the appropriate authority considers that provisions which implement the provisions of the Pillar Two rules relating to top-up tax under the IIR (within the meaning of those rules)—
(a) have effect under the law of that territory, or
(b) will have effect under the law of that territory on or before the specification has effect.
(2A) The “appropriate authority” means—
(a) in relation to the specification of a territory in regulations, the Treasury, or
(b) in relation to the specification of a territory made by notice, the Commissioners for His Majesty’s Revenue and Customs.
(3) Regulations under this section may provide for the specification of a territory ... to have effect from a time before the territory was specified (but may not provide for the specification of a territory to cease to have effect in relation to accounting periods commencing before the regulations are made).
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) In this Part “ownership interest” means a direct ownership interest or an indirect ownership interest.
(2) An entity or an individual (“A”) has a direct ownership interest in an entity (“B”) if—
(a) A has an interest (whether by way of shares, other security or otherwise) that gives rise to a share of the profits, capital or reserves of B or of a permanent establishment of B (whether on the making of a distribution of profits, winding up or otherwise), and
(b) that interest is accounted for as equity in—
(i) where B is a member of a consolidated group, the consolidated financial statements of the ultimate parent of the group (ignoring any requirement to consolidate the assets, liabilities, income, expenses and cash flows of B in those statements), or
(ii) otherwise, B’s financial statements.
(3) An entity or an individual (“C”) has an indirect ownership interest in an entity (“D”) if C has a direct ownership interest in—
(a) an entity that has a direct ownership interest in D, or
(b) an entity that has (as a result of the single or repeated application of this subsection) an indirect ownership interest in D.
(4) An entity (“R”) has a controlling interest in another entity (“S”) if condition A or B is met.
(5) Condition A is that as a result of an ownership interest R has in S—
(a) R is required to consolidate the assets, liabilities, income, expenses and cash flows of S on a line-by-line basis in accordance with an acceptable ... accounting standard, or
(b) R would have been required to do so if R had prepared consolidated financial statements.
(6) Condition B is that S is a permanent establishment of R.
243 Calculating percentage ownership interests of a specific entity or individual
(1) For the purpose of determining the percentage ownership interests in an entity (“A”) held by a specific entity or individual (“B”)—
(a) ignore any indirect ownership interest not held by B, and
(b) where B has an indirect ownership interest in A, reduce the direct ownership interest from which it is derived by the amount of that indirect ownership interest.
(2) But this section does not apply for the purpose of any provision that requires the calculation of direct ownership interests only.
244 Calculating percentage ownership interests of a class
(1) For the purpose of determining the percentage of ownership interests in an entity (“A”) held by a class of entities (“B”)—
(a) ignore any indirect ownership interest required to be ignored as described in subsection (2), and
(b) reduce any percentage direct ownership interest required to be reduced in accordance with subsection (3).
(2) An indirect ownership interest is to be ignored if—
(a) it is an indirect ownership interest held by an individual or by an entity that is not a member of B, or
(b) it is an indirect ownership interest held by a member of B through another entity that is a member of B.
(3) Where a member of B holds an indirect ownership interest in A solely through an entity, or entities, that are not members of B, the direct ownership interest from which it is derived is to be reduced by the amount of that indirect ownership interest.
(4) This section does not apply—
(a) for the purpose of any provision that requires the calculation of direct ownership interests only, or
(b) for the purposes of section 127(6)(a) and (7)(a) (whether an entity is 95% or 85% owned by qualifying excluded entities).
(1) For the purpose of determining, under section 127(6)(a) and (7)(a), the percentage of ownership interests in an entity (“A”) held by qualifying excluded entities—
(a) ignore any indirect ownership interest apart from ownership interests held solely through one or more qualifying service entities or qualifying exempt income entities, and
(b) ignore any direct or indirect ownership interest required to be ignored as described in subsection (2).
(2) Where an individual or an entity holds an indirect ownership interest in A solely through an entity, or entities, that are qualifying service entities or qualifying exempt income entities, each direct and indirect ownership interest from which it is derived is to be ignored.