246 Calculating percentage direct and indirect ownership interests
(1) To determine the percentage of direct ownership interest an entity or individual (“E”) has in an entity (“F”)—
(a) add together the proportional entitlement of E to the following types of interest that are relevant—
(i) an interest that gives rise to a share of profits of F,
(ii) an interest that gives rise to a share of the capital of F, and
(iii) an interest that gives rise to a share of the reserves of F, and
(b) if—
(i) F issues all of those types of interest and all of those types are relevant, divide the result of paragraph (a) by 3, or
(ii) F only issues 2 of the relevant types of interest or there are only 2 types of interest that are relevant and F issues both of them, divide the result of paragraph (a) by 2.
(2) For the purposes of subsection (1)—
(a) where a provision under which a percentage of ownership interests is to be determined refers to types of interest mentioned in those sub-paragraphs, the types referred to are “relevant”, and
(b) where such a provision does not refer to types of interest mentioned in sub-paragraphs (i) to (iii) of subsection (1)(a), all of those types of interest are “relevant”.
(3) To determine the percentage indirect ownership interest an entity or individual (“G”) has in an entity (“H”)—
(a) determine the percentage indirect ownership interest arising as a result of each stack through which it has an indirect ownership interest in H, and
(b) add those percentage indirect ownership interests for those stacks together.
(4) For the purposes of subsection (3) a “stack” means a chain of entities through which G has an indirect ownership interest in H which is comprised of an entity (“J”) which has a direct ownership interest in H and—
(a) where G has a direct ownership interest in J, G, or
(b) where G does not have a direct ownership interest in J—
(i) G,
(ii) an entity (“K”) which has a direct ownership interest in J and that G has a direct or indirect ownership interest in, and
(iii) where G does not have a direct ownership interest in K, an entity which has a direct ownership interest in K and that G has a direct or indirect ownership interest in, and so on until an entity is reached that G has a direct ownership interest in.
(5) To determine G’s percentage indirect ownership interest in H arising as a result of a stack—
(a) determine, in accordance with subsection (1)—
(i) J’s percentage direct ownership interest in H, and
(ii) the percentage direct ownership interest each other member of the stack has in the member of the stack it has a direct ownership interest in, and
(b) multiply together the percentage direct ownership interests determined under paragraph (a).
(1) Where ownership interests in an entity are transferred from one entity or individual to another entity or individual, that transfer is to be treated as effective at the earlier of—
(a) the time when the obligations of the parties to the transfer necessary to effect the transfer have been met, and
(b) the time when any of the substantive consideration for the transfer has been provided,
(instead of at any other time).
(2) In subsection (1)(b) the reference to “substantive consideration” means any amount of the consideration for the transfer other than any amount provided before the transfer which would not be refundable if the transfer did not take place as a result of the transferee not meeting its obligations under the arrangements to make the transfer.
248 Exclusion of indirect interests held through ultimate parent
For the purposes of determining whether an entity or individual has an indirect ownership interest in a member of a multinational group (other than the ultimate parent), ignore any indirect interests arising only as a result of an ownership interest in the ultimate parent.
(1) The consolidated financial statements of an entity are—
(a) where the entity is not the ultimate parent of a consolidated group whose only members are that entity and its permanent establishments, the financial statements prepared by the entity in accordance with acceptable accounting standards in which the assets, liabilities, income, expenses and cash flows of that entity and the entities it has a controlling interest in are presented as those of a single economic unit,
(b) where the entity is the ultimate parent of a consolidated group whose only members are that entity and its permanent establishments, the financial accounts of that entity that are prepared in accordance with an acceptable accounting standard,
(c) where the entity has prepared statements that would fall within paragraph (a) or (b) but they were not prepared in accordance with an acceptable accounting standard, those statements but adjusted to prevent material competitive distortions, or
(d) where no statements were prepared falling within paragraphs (a) to (c), the statements that would have been prepared (whether or not the entity was required to prepare such statements) in accordance with an authorised accounting standard that is either—
(i) an acceptable accounting standard, or
(ii) a financial accounting standard whose application is adjusted to prevent material competitive distortions.
(2) But subsection (1)(d) is not to be taken as imposing a requirement to consolidate entities where that is not required, or is not permitted, by the authorised accounting standard that is used as the basis for the statements that would have been prepared.
(3) “Authorised accounting standard” in relation to an entity means a set of generally acceptable accounting principles permitted by the body responsible for prescribing, establishing or accepting accounting standards for financial reporting purposes in the territory the entity is located in.
(4) There are “competitive distortions” in accounts not prepared in accordance with an acceptable accounting standard if the result of the application of one or more specific principles or procedures under the standard under which it was prepared results in differences between—
(a) the treatment of items in those accounts, and
(b) the treatment of those items in accounts prepared in accordance with the corresponding principles or procedures under international financial reporting standards.
(5) Competitive distortions are “material” if the sum of the differences between the treatment of items in the accounts referred to in subsection (4) exceeds 75 million euros.
(1) In this Part “acceptable accounting standards” means—
(a) UK GAAP,
(b) acceptable overseas GAAP, or
(c) international financial reporting standards.
(2) “UK GAAP”—
(a) means generally accepted accounting practice in relation to accounts of UK companies (other than accounts prepared in accordance with international accounting standards or international financial reporting standards) that are intended to give a true and fair view, and
(b) has the same meaning in relation to entities other than companies, and companies that are not UK companies, as it has in relation to UK companies.
(3) “Acceptable overseas GAAP” means the generally accepted accounting practice and principles of any of the following—
Australia;
Brazil;
Canada;
an EEA state;
the Hong Kong Special Administrative Region of the People‘s Republic of China;
Japan;
Mexico;
New Zealand;
the People’s Republic of China;
the Republic of India;
the Republic of Korea;
Singapore;
Switzerland;
the United States of America.
(4) The Treasury may by regulations amend subsection (3) to add or remove territories.
(5) In this section “UK companies” means companies incorporated or formed under the law of a part of the United Kingdom.
(1) The general rule is that reference to an accounting period in relation to a multinational group, or any member of that group, is to an accounting period for which the ultimate parent prepares its consolidated financial statements.
(2) Where the ultimate parent does not prepare consolidated financial statements, references to accounting periods are to the period of a year commencing on 1 January.
(3) But—
(a) where an accounting period (“the default period”) has started as a result of the rule in subsection (2), but the ultimate parent prepares consolidated financial statements during the default period for a period commencing with a date after the start of the default period, the default period is to end immediately before that date, and
(b) where the ultimate parent had previously prepared consolidated financial statements for accounting periods, the accounting period that follows the last period for which it had prepared consolidated financial statements begins immediately after that last period and ends immediately before 1 January in the following year.
(1) In this Part “country-by-country report” means a country-by-country report in respect of a multinational group that is prepared and filed in accordance with legislation implementing the OECD’s guidance on country-by-country reporting.
(2) But where the legislation of a territory permits the preparation and filing of a partial country-by country report, such a partial report is not to be regarded as country-by-country report for the purposes of this Part.
(3) Reference to a country-by-country report in respect of a multinational group that is a multi-parent group is to a report in respect of all of the constituent groups.
(4) “The OECD’s guidance on country-by-country reporting” means the guidance on country-by-country reporting contained in the Organisation for Economic Co-operation and Development (“OECD”) Guidance on Transfer Pricing Documentation and Country-by-Country Reporting, published in 2014, as modified, supplemented or replaced from time to time.
(1) A sovereign wealth fund that would, ignoring this subsection, be the ultimate parent of a multinational group is not to be regarded as the ultimate parent of that group and is to be ignored for the purposes of this Part.
(2) Accordingly, an entity (“A”) in which such a sovereign wealth fund has a controlling interest as a result of direct ownership interests is to be regarded as the ultimate parent of a consolidated group consisting of—
(a) itself, and
(b) the entities that A has a controlling interest in.
(3) For the purposes of this section “sovereign wealth fund” means an entity which is a governmental entity for the purposes of this Part as a result of meeting the condition in section 234(1)(b)(ii).
253 Disqualified and qualified refundable imputation taxes
(1) An amount of tax payable by a member of a multinational group is “disqualified refundable imputation tax” if—
(a) it is—
(i) as a result of a dividend made by the member, refundable to the beneficial owner of the dividend,
(ii) creditable by the beneficial owner of such a dividend against a tax liability other than a tax liability in respect of that dividend, or
(iii) refundable to an entity upon the distribution of a dividend, and
(b) it is not qualified refundable imputation tax.
(2) An amount of tax payable by a member of a multinational group is “qualified refundable imputation tax” to the extent—
(a) it is refundable or creditable to the beneficial owner of a dividend distributed by—
(i) the member, or
(ii) where the member is a permanent establishment, the main entity, and
(b) the refund is payable, or the credit is provided—
(i) under a foreign tax credit regime by a territory other than the territory that imposed the tax on the member,
(ii) to a beneficial owner of the dividend subject to tax in the territory imposing the tax payable by the member, provided the nominal rate of that tax that is at least 15%,
(iii) to a beneficial owner of the dividend who is an individual who is tax resident in that territory and who is subject to tax on the dividends as ordinary income,
(iv) to a governmental entity or an international organisation,
(v) to a resident non-profit organisation or a resident pension fund ...
(va) a resident investment entity that is not a member of the group, or
(vi) to a resident life insurance company to the extent the dividends are received in connection with a pension fund business and subject to tax in a similar manner as a dividend received by a pension fund.
(3) For the purposes of sub-paragraphs (v) and (vi) of subsection (2)(b), an entity is a resident entity if it is resident in the territory that imposed the tax, and for those purposes—
(a) a non-profit organisation or pension fund is resident in a territory if it is created and managed in that territory;
(b) an investment entity is resident in a territory if it is created and regulated in that territory;
(c) a life insurance company is resident in a territory if it is located there (see section 239).
(1) Calculations under this Part in relation to a multinational group, or any member of such a group, are to be carried out in the currency of the consolidated financial statements of the ultimate parent (“the CFS currency”).
(2) Where it is necessary to convert an amount into the CFS currency, that conversion is to be made in accordance with the authorised accounting standard—
(a) that was used in preparing the consolidated financial statements of the ultimate parent, or
(b) where no such statements were prepared, that is used as the basis for the statements that would have been prepared.
(3) For the purpose of comparing an amount to a figure expressed in this Part in euros, the amount is to be converted to euros for that purpose (from the CFS currency) by reference to the average exchange rate for the month of December that preceded the beginning of the accounting period to which the amount relates.
(4) Where the European Central Bank publishes exchange rates for the CFS currency, use those rates for the purposes of the conversion under subsection (3) and any conversion under subsection (3) of section 123 (amount charged by reference to top-up amounts).
(5) Otherwise—
(a) where the Bank of England publishes exchange rates for the CFS currency, use those rates for the purposes of that conversion, or
(b) where the Bank of England does not publish exchange rates for that currency, use such a rate as appears, on a just and reasonable basis, to reflect the average exchange rate for the period in question.
(1) In this Part references to the “Pillar Two rules” are to the Pillar Two model rules as interpreted in accordance with, and supplemented by—
(a) the Pillar Two commentary, and
(b) any further commentaries or guidance published from time to time by the OECD that are relevant to the implementation of the Pillar Two model rules.
(2) In subsection (1)—
“Pillar Two model rules” means the model rules published by the Organisation for Economic Co-operation and Development as “Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two): Inclusive Framework on BEPS”;
“Pillar Two commentary” means the following—
the commentary on the Pillar Two model rules published by the Organisation for Economic Co-operation and Development as “Tax Challenges Arising from the Digitalisation of the Economy – Commentary to the Global Anti-Base Erosion Model Rules (Pillar Two)”, and
the examples illustrating the application of the Pillar Two model rules published by the Organisation for Economic Co-operation and Development as “Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two) Examples”.
(2A) Pillar Two rules apply to a member of a multinational group (“the relevant member”) in an accounting period if conditions A, B and C are met.
(3) Condition A is met if—
(a) the group is a qualifying multinational group for the accounting period, or
(b) the group would be a qualifying multinational group for the accounting period but is not only as a result of Condition B in section 129(3) (requirement that at least one member located in the United Kingdom).
(4) Condition B is that—
(a) the ultimate parent is subject to Pillar Two IIR tax for the accounting period and is not located in the same territory as the relevant member,
(b) an intermediate parent member of the group is subject to Pillar Two IIR tax for the accounting period, is not located in the same territory as the relevant member and has an ownership interest in—
(i) the relevant member, or
(ii) a member of the group located in the same territory as the relevant member, or
(c) any member of the group is located in a territory in which a qualifying undertaxed profits tax is in force for the accounting period.
(5) Condition C is that no transitional safe harbour election applies to the relevant member for that period.
(6) For the purposes of this Part “transitional safe harbour election” means—
(a) an election under paragraph 3 of Schedule 16 (transitional safe harbour), or
(b) an election corresponding to that election for the purposes of a tax imposed by a Pillar Two territory that is equivalent to multinational top-up tax so far as it relates to top-up tax under the IIR (within the meaning of the Pillar Two rules).
(1) For the purposes of this Part a tax is a “qualifying domestic top-up tax” if it is—
(a) domestic top-up tax (see Part 4), or
(b) specified in , or in accordance with, regulations made by the Treasury.
(1A) Regulations may provide for the specification of a tax to be made by notice published by the Commissioners for His Majesty’s Revenue and Customs in accordance with the regulations.
(2) A tax may only be specified in regulations , or a notice, if the appropriate authority considers that it is equivalent in substance to domestic top-up tax (see Part 4).
(2A) The “appropriate authority” means—
(a) in relation to the specification of a tax in regulations, the Treasury, or
(b) in relation to the specification of a tax made by notice, the Commissioners for His Majesty’s Revenue and Customs.
(3) A tax may be considered equivalent to domestic top-up tax despite being not being calculated in accordance with the financial accounting standard used in the consolidated financial statements of the ultimate parent if calculated in accordance with an authorised accounting standard that is either—
(a) an acceptable accounting standard, or
(b) another financial accounting standard that is adjusted to prevent material competitive distortions.
(4) Regulations under this section may provide for the specification of a tax ... to have effect from a time before the tax was specified (but may not provide for the specification of a tax to cease to have effect in relation to accounting periods commencing before the regulations are made).
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
256A Qualifying domestic top-up tax treated as not accruing where contested etc
(1) Subsection (2) applies for the purposes of sections 194(2) to (7), 203(3) to (7) and 206(4) to (8) (application of QDT credits in determination of top-up amounts).
(2) An amount of qualifying domestic tax accruing to a member of a multinational group is to be treated as not accruing to the member where the enforceability of the amount is in question.
(3) For the purposes of this section, the enforceability of an amount of qualifying domestic top-up tax accruing to a member of a multinational group is in question if—
(a) the member disputes its enforceability on any of the grounds set out in subsection (4), or
(b) the tax authority of the territory in which the qualifying domestic top-up tax is imposed considers the amount unenforceable on the basis of any of those grounds.
(4) Those grounds are that—
(a) the amount is unenforceable on constitutional grounds or as a result of other superior law applying in the territory in which the qualifying domestic top-up tax is imposed, or
(b) the amount is unenforceable as a result of a specific agreement with the government of that territory as to the tax liability of the member or the group.
(5) Subsection (2) ceases to apply where the enforceability of an amount of qualifying domestic top-up tax ceases to be in question.
(6) Where the enforceability of an amount of qualifying domestic top-up tax was in question, it ceases to be in question where—
(a) the amount has been paid, and
(b) the enforceability of the amount may no longer be disputed as a result of—
(i) a settlement,
(ii) the time for any appeal having passed and there being no reasonable prospect of the time being extended, or
(iii) the exhaustion of any rights to appeal.
(1) For the purposes of this Part a tax is a “qualifying undertaxed profits tax” if it is —
(a) multinational top-up tax (see, in particular, Chapter 9A), or
(b) specified in regulations made by the Treasury.
(1A) Regulations under subsection (1)(b) may provide for the specification of a tax to be made by notice published by the Commissioners for His Majesty’s Revenue and Customs in accordance with the regulations.
(2) A person may only specify a tax by virtue of this section if the person considers that the tax is an appropriate means of implementing the UTPR (within the meaning of the Pillar Two rules).
(3) Regulations under this section may provide that the specification of a tax is to have effect from a time before the regulations are made (but may not provide that the specification of a tax previously specified ceases to have effect before the regulations are made).
For the purposes of this Part, a person or entity is “connected” with an entity if they are “closely related” within the meaning of Article 5(8) of the OECD tax model.
(1) In this Part—
“company” means a body corporate;
“deemed distribution” has the meaning given by section 215(4)(c);
“for accounting purposes” means for the purposes of accounts drawn up in accordance with acceptable accounting standards;
“held for sale” has the meaning given by international accounting standards;
“HMRC” means His Majesty’s Revenue and Customs;
“international financial reporting standards” or “international accounting standards” means those standards as issued or adopted, from time to time, by the International Accounting Standards Board;
“OECD tax model” means the Model Tax Convention on Income and on Capital published (from time to time) by the Organisation for Economic Co-operation and Development;
“overseas REIT equivalent” means an entity resident in a territory outside the United Kingdom that is the equivalent of a UK REIT;
“partnership” does not include anything that is a body corporate;
“tax treaty” means an international agreement for, or provision of an international agreement concerned with, the avoidance of double taxation with respect to taxes on income and on capital;
“UK REIT” means—
a company UK REIT within the meaning of Part 12 of CTA 2010 (see section 524 of that Act), or
a company that is a member of a group UK REIT within the meaning of that Part (see sections 523 and 606 of that Act);
an “uncertain tax position”, in relation to an amount of covered taxes, exists where the amount as reflected in the underlying profits accounts is different to how it is, or will be, reflected in a tax return because of uncertainty over whether the tax authority in question will accept the basis on which it is reflected in that return.
(2) For the purposes of this Part, an individual is “tax resident” in a territory if—
(a) in the case of the United Kingdom, the individual is resident for income tax purposes, and
(b) in any other territory, the individual is resident for the purposes of a tax on income imposed under the law of that territory.
(3) Where a term in this Part has a meaning for accounting purposes, unless the context otherwise requires, it has that meaning in this Part.
(4) Examples of such terms include—
carrying value;
current tax;
deferred tax;
deferred tax expense;
deferred tax asset;
deferred tax liability;
fair value;
impairment;
tax expense.
(1) Schedule 16 contains transitional provision and provision about a general transitional safe harbour.
(2) Schedule 16A contains provision about other safe harbours.
262 Power to amend to ensure consistency with Pillar Two
(1) Where the Treasury consider it necessary for the purpose of ensuring consistency with the Pillar Two rules, the Treasury may by regulations—
(a) make further provision about the application of provisions of this Part , Part 4 or any of Schedules 14 to 16A and 18, or
(b) amend this Part , Part 4 or any of Schedules 14 to 18.
(1A) The provision that may be made by regulations under subsection (1) includes provision designed to secure the effective implementation of the Pillar Two rules including—
(a) provision to ensure consistency with commentaries or guidance published by the OECD that has effect from a time before the commentary or guidance was published;
(b) provision that the Treasury consider necessary to secure the effective operation of multinational top-up tax or domestic top-up tax (see Part 4) where—
(i) the provision does not, at the time of making it, reflect the Pillar Two rules, but
(ii) it is reasonable for the Treasury to believe that changes will be made to the rules that are consistent with, or are similar to, the provision.
(1B) Provision made by regulations under subsection (1) may not have effect—
(a) in the case of provision falling within subsection (1A)(a), in relation to accounting periods ending before the commentary or guidance was published, or
(b) in the case of any other provision, in relation to accounting periods ending before the regulations are made.
(1C) Provision that has effect in relation to accounting periods that begin before the regulations are made may only be made if the Treasury consider that the provision is generally beneficial to—
(a) persons affected by the implementation of the Pillar Two rules, or
(b) persons affected by the provision.
(1D) The reference in subsection (1C) to provision being generally beneficial includes the provision being beneficial by reference to it—
(a) simplifying, or reducing the costs of, compliance with—
(i) multinational top-up tax or domestic top-up tax, or
(ii) taxes imposed under the law of a territory outside the United Kingdom that correspond to multinational top-up tax or domestic top-up tax;
(b) generally (but not necessarily in every case) resulting in a reduction or elimination of a liability to—
(i) multinational top-up tax or domestic top-up tax, or
(ii) taxes imposed under the law of a territory outside the United Kingdom that correspond to multinational top-up tax or domestic top-up tax.
(2) The power in this section may not be exercised after 31 December 2026.
(1) A power to make regulations under this Part includes a power to make consequential, supplementary, incidental, transitional or saving provision.
(2) Regulations under this Part are to be made by statutory instrument.
(3) A statutory instrument containing (whether alone or with other provision) regulations made under section 262(1)(b) is subject to the made affirmative procedure.
(4) Otherwise, a statutory instrument containing regulations under this Part is subject to annulment in pursuance of a resolution of the House of Commons.
(5) Where a statutory instrument is subject to “the made affirmative procedure”—
(a) it must be laid before the House of Commons after being made, and
(b) it ceases to have effect at the end of the period of 28 sitting days beginning with the day on which the instrument is made, unless within that period the instrument is approved by a resolution of the House of Commons.
(6) Where regulations cease to have effect as a result of subsection (5), that does not—
(a) affect anything previously done under the regulations, or
(b) prevent the making of new regulations.
(7) In this section, “sitting day” means a day on which the House of Commons is sitting (and a day is only a day on which the House of Commons is sitting if the House begins to sit on that day).
(1) The purpose of this Part is to make provision for a qualified domestic minimum top-up tax within the meaning of the Pillar Two rules.
(2) For that purpose, this Part makes provision for a tax payable in respect of qualifying entities (that will be located in the United Kingdom) whose rate of tax (as determined in accordance with this Part) is less than 15%.
(3) The tax is to be known as “domestic top-up tax”.
(4) This Part applies (with modifications) many of the provisions of Part 3 (multinational top-up tax) for the purposes of—
(a) determining liability to domestic top-up tax, and
(b) administering domestic top-up tax.
(5) Except where the contrary appears, expressions used in this Part and in Part 3 (multinational top-up tax) have the same meaning in this Part as they have in Part 3.
(1) An entity which is not a member of a joint venture group is qualifying for an accounting period if it is not a DTT excluded entity ..., it meets condition A for that period and—
(a) if it is not a member of a group, it meets condition B for that period, or
(b) if it is a member of a group, it meets condition C for that period.
(1A) A member of a joint venture group is a qualifying entity for an accounting period if—
(a) the member is not a DTT excluded entity,
(b) the member meets condition A for that period, and
(c) the revenue condition is met in relation to the group for that period.
(1B) For the purposes of subsection (1A) the “revenue condition” is met in relation to a joint venture group for an accounting period if—
(a) a single entity which directly or indirectly holds at least 50% of the ownership interests in the joint venture parent meets Condition A and Condition B for that period, or
(b) the members of a group (the “relevant group”) whose ultimate parent directly or indirectly holds at least 50% of the ownership interests in the joint venture parent meet Condition C for that period and—
(i) all of those members are located in the United Kingdom, or
(ii) the relevant group is a multinational group (see section 126 in Part 3), and at least one of the members is located in a Pillar Two territory.
(2) Condition A is met by an entity for an accounting period if it is located in the United Kingdom in that period (see section 239 in Part 3).
(3) Condition B is met by an entity for an accounting period if the entity has revenue that exceeds the threshold set out in subsection (6) in at least 2 previous accounting periods of the previous 4 accounting periods.
(4) For the purposes of condition B, the revenue of an entity that is not a member of a group is to be determined by reference to its qualifying financial statements.
(5) Condition C is met by a member of a group for an accounting period if the members of the group have revenue that exceeds the threshold set out in subsection (6) in at least 2 previous accounting periods of the previous 4 accounting periods.
(6) The threshold for an accounting period is the amount given by multiplying 750 million euros by the amount given by dividing the number of days in the accounting period by 365.
(7) For the purposes of condition C, the revenue of the members of a group for a period is to be determined by reference to the consolidated financial statements of the ultimate parent for that period (see sections 126(2) and 249 in Part 3).
(8) Sections 130 and 131 in Part 3 (change in composition of multinational groups) apply for the purpose of Condition C as if—
(a) references to “multinational group” were to “group”,
(b) in section 130—
(i) in subsection (1), for “condition A in section 129(2)” there were substituted “condition C in section 266(5)”,
(ii) in subsection (4), for “section 129(4)” there were substituted “section 266(6)”,
(c) in section 131(1)—
(i) for “section 129” there were substituted “section 266”,
(ii) for “subsection (2)” there were substituted “subsection (5)”,
(iii) for “condition A” there were substituted “condition C”, and
(iv) for “section 129(4)” there were substituted “section 266(6), and
(d) in section 131(2), for “condition A in section 129(2)” there were substituted “condition C in section 266(5)”
(9) References in this Part to a “group” (other than in the expression “multinational group”) means a consolidated group (see section 126(2) in Part 3).
(10) For the purposes of this Part “qualifying financial statements” in relation to an entity means—
(a) financial statements of the entity prepared in accordance with acceptable accounting standards, or
(b) where no such accounts were prepared, the statements that would have been prepared (whether or not the entity was required to prepare such statements) in accordance with an authorised accounting standard that is either—
(i) an acceptable accounting standard, or
(ii) a financial accounting standard whose application is adjusted to prevent material competitive distortions (see section 249(4)).
(1) An entity is a DTT excluded entity if—
(a) it falls within subsection (3) of section 127 in Part 3 (excluded entities),
(b) it is a member of a multinational group and falls within subsection (4) of that section, or
(c) it is a member of a group that is not a multinational group, but would fall within that subsection if that group were a multinational group.
(1A) A UK REIT is a DTT excluded entity (so far as would not already be the case by virtue of subsection (1)(b) or (c)).
(2) A DTT excluded entity falling within subsection (1) or (3B)(b) (as well as not being a qualifying entity) is, for the purposes of the provisions of this Part other than section 266 and this section, to be treated as not being a member of any group.
(3) A qualifying transformer vehicle that is not a member of a multinational group is also a DTT excluded entity.
(3ZA) A company is a DTT excluded entity if—
(a) it is a qualifying asset holding company for the purposes of Schedule 2 to FA 2022, and
(b) is not a member of a multinational group.
(3A) A securitisation company that is not a member of a group for the purposes of domestic top-up tax is a DTT excluded entity (and see section 267A).
(3B) An investment entity is a DTT excluded entity if—
(a) it is not a member of a group, or
(b) it is a member of group that is comprised only of members located in the United Kingdom.
(3C) Where an investment entity is a member of a group that is not comprised only of members located in the United Kingdom—
(a) that entity is not to be regarded as a qualifying entity, but
(b) top-up amounts of that entity are to be determined under sections 220 to 224 (see also section 272(3A) which has the effect of attributing those amounts to standard members of the group that are qualifying entities and are located in the same territory as the investment entity).
(3D) An investment entity that falls within subsection (3C) is not to be regarded as a member of any group for any purpose other than for the purposes of—
(a) determining the top-up amounts of that entity under those sections,
(b) applying Condition C in section 266 in relation to other members of the group (revenue threshold for group), and
(c) subsections ... (9), (10) and (11) of section 272 and the section 193A(2) contained in subsection (3A) of that section.
(4) In this section
“qualifying transformer vehicle” means—
a qualifying transformer vehicle within the meaning of the Risk Transformation (Tax) Regulations 2017 (S.I. 2017/1271), or
a part of a protected cell company that is a qualifying transformer vehicle within the meaning of those Regulations;
“securitisation company” has the meaning it has in the Taxation of Securitisation Companies Regulations 2006 (see regulation 4).
267A Securitisation companies in a group treated as not consolidated
(1) Subsection (2) applies to a securitisation company that is a member of a group.
(2) The company is only to be regarded as a member of the group for the purposes of applying Condition C in section 266 in relation to other members of the group (revenue threshold for group).
(3) Otherwise, the company is to be treated as not being a member of any group for the purposes of domestic top-up tax.
Section 232(3) (permanent establishment treated as distinct from entity it is a permanent establishment of) applies for the purposes of this Part as it applies for the purposes of Part 3.
(1) A person is chargeable to domestic top-up tax for an accounting period if—
(a) the person is a qualifying entity for that period and is a body corporate or a partnership ..., or
(b) the person is chargeable to tax in respect of an entity—
(i) that is a qualifying entity for that period, and
(ii) that is not a body corporate or a partnership ....
(2) A person is chargeable to tax in respect of an entity if the profits of that entity would, on the relevant assumptions, be the profits of the person for the purposes of income tax or corporation tax.
(3) The relevant assumptions are that—
(a) the entity has profits that are chargeable to income tax or corporation tax, and
(b) the person is resident in the United Kingdom for the purposes of that tax.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Where more than one person is chargeable to tax in relation to the same qualifying entity as a result of the application of subsection (2), each of those persons is jointly and severally liable to domestic top-up tax.
(A1) Where a person is chargeable to domestic top-up tax for an accounting period as, or in respect of, a qualifying entity which is a member of a group, the amount (if any) the person must pay is determined as follows—
Step 1
Determine (in accordance with section 272)—
whether the entity has a top-up amount for that period, and
the extent of any such amount.
Step 2
If the result of Step 1 is not expressed in sterling, convert the result of that Step to sterling.
(1) Where a person is chargeable to domestic top-up tax for an accounting period as or in respect of a qualifying entity which is not a member of a group, the amount (if any) the person must pay is determined as follows—
Step 1
Determine (in accordance with section 273) whether the entity has any top-up amounts or additional top-up amounts for that period and the extent of those amounts.
Step 2
Determine the sum of those amounts.
Step 3
If the result of Step 3 is not expressed in sterling, convert the result of that Step to sterling.
(2) Generally, a qualifying entity will have a top-up amount for an accounting period if it has profits for a period and its effective tax rate (or, where it is a member of a group, that of its group) is less than 15%.
(3) Chapter 3 of this Part makes provision, principally by applying (with modifications) provisions in Part 3, for determining—
(a) the effective tax rate of a qualifying entity by reference—
(i) in the case of an entity that is a member of a group, to the profits of, and the taxes payable by, members of the group that are located in the United Kingdom, or
(ii) in the case of an entity that is not a member of a group, to its profits and to the taxes payable by that entity.
(b) those profits,
(c) which taxes (referred to as “covered taxes”) are to be considered in the determining effective tax rates,
(d) top-up amounts, and
(e) additional top-up amounts.
(4) The exchange rate to be used for a conversion to sterling required by Step 2 in subsection (A1) or Step 3 in subsection (1) is—
(a) the average exchange rate published by the European Central Bank for the accounting period in question;
(b) where no such rate is published by the European Central Bank, the average exchange rate published by the Bank of England for the accounting period in question;
(c) where no such rate is published by either the European Central Bank or the Bank of England, such rate as appears, on a just and reasonable basis, to reflect the average exchange rate for the accounting period in question.
271 Election to make one member of a group liable for amounts charged
(1) Where multiple members of a group are chargeable to domestic top-up tax in an accounting period, the filing member of the group may elect that only one member of the group specified in the election (the “elected member”) is to be liable to pay domestic top-up tax in that period.
(2) Where an election under this section is made—
(a) no member of the group other than the elected member is required to pay any amount by way of domestic top-up tax, and
(b) the elected member must pay any amount by way of domestic top-up tax any other member of the group would have been required to pay if the election had not been made.
(3) Subsection (2) does not apply if the elected member has not consented to the election.
(4) 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.
272 Determining top-up amounts of entity that is a member of a group
(1) Subject as follows, Chapters 3 to 6, 8 and 9 of Part 3 apply for the purposes (“domestic purposes”) of determining whether a qualifying entity that is a member of a group has top-up amounts or additional top-up amounts, and the extent of those amounts, as they apply for the purpose of determining the same for the purposes of multinational top-up tax.
(2) Where the group is not a multinational group, that Part has effect for domestic purposes as if any reference to a multinational group were to a group.
(3) Part 3 has effect for those purposes as if the following provisions (which provide for reductions of top-up amounts where a qualifying domestic top-up tax is payable) were omitted—
(a) in section 194, subsections (2) to (7);
(b) in section 203, subsections (3) to (7);
(c) in section 206, subsections (4) to (8).
(3A) Part 3 has effect for those purposes as if the following sections were substituted for section 193—
Determination of top-up amounts of entity that is a member of a group
193 (1) Subsection (2) sets out (for the purposes of Step 1 of section 270(A1)) how to determine in relation to an accounting period—
(a) whether an entity which is a standard member of a group has a top-up amount, and
(b) if so, what the amount is.
(2) Take the following Steps—
Step 1
Determine for the period (in accordance with section 272) the sum of any top-up amounts and additional top-up amounts of standard members of the group (the “total top-up amount”).
Step 2
Determine for each such member—
the adjusted profits (if any);
the covered tax balance.
Step 3
For each standard member of the group in relation to which a positive amount of adjusted profits is determined under Step 2, determine the “effective tax rate” by dividing the amount found under Step 2(b) (covered tax balance) by the amount found under Step 2(a) (adjusted profits).
Step 4
For any standard member of the group whose effective tax rate (see Step 3) is less than 15%—
determine that member’s “top-up tax percentage” by subtracting the member’s effective tax rate from 15%, and
proceed to Step 5.
Step 5
Calculate for the member an amount (an “allocation key amount”) by multiplying—
the member’s top-up tax percentage (see Step 4(a)), by
the member’s adjusted profits.
Step 6
Determine the sum (the “group allocation key amount”) of all the allocation key amounts calculated under Step 5 for members of the group.
Step 7
Determine the “allocation key ratio” for each standard member of the group whose effective tax rate (see Step 3) is less than 15%, by dividing—
the member’s allocation key amount (see Step 5), by
the group allocation key amount (see Step 6).
Step 8
Determine each such member’s top-up amount by multiplying—
the sum of any top-up amounts and additional top-up amounts of standard members of the group for the period (see Step 1), by
the member’s allocation key ratio (see Step 7).
Step 9
If none of the standard members falls within Step 3, or none of them has an effective tax rate of less than 15%, each standard member has a top-up amount equal to—
the total top-up amount, divided by
the number of the standard members.
Section 193: supplementary
193A (1) Section 193 and subsection (2) of this section apply to joint venture groups and their members as they apply to groups and their members.
(2) Section 193 has effect in relation to a qualifying entity that is a standard member of a group as if the total top-up amount referred to in that section included any top-up amounts or additional top-up amounts of qualifying investment entities determined under sections 220 to 224.
(3) See also subsections (9) to (11) of section 272, which—
(a) define “qualifying investment entity” in relation to a qualifying entity, and
(b) make further provision about top-up amounts (for the purposes of domestic top-up tax).
(4) The following provisions of Part 3 are of no practical application for domestic purposes and accordingly that Part has effect for those purposes as if they were omitted—
(a) section 173(1)(b) and sections 189 to 192 (eligible distribution tax systems);
(b) section 225 (attribution of top-up amounts of investment entities).
(c) Chapter 9A (qualifying undertaxed profits tax).
(5) Where—
(a) an election is made under Part 3 in relation to a member of a multinational group (whether or not a qualifying entity) for the purposes of multinational top-up tax, and
(b) if the election had effect for domestic purposes, it would affect the calculation of top-up amounts or additional top-up amounts,
that election has effect for domestic purposes.
(6) For the purposes of subsection (5), a foreign IIR election is to be treated as an election made under Part 3.
(7) A “foreign IIR election” means an election—
(a) made in respect of a group in connection with a tax equivalent to multinational top-up tax in another Pillar Two territory;
(b) contained in an information return—
(i) submitted to a qualifying authority in that territory, and
(ii) in relation to which information in the return about the election has been shared with HMRC.
(8) For domestic purposes—
(a) section 134 (underlying profits as determined for statements of ultimate parent) has effect as if, after subsection (3), there were inserted—
(3A) The conditions in subsection (3) are not required to be met if—
(a) the alternative accounting standard is UK GAAP,
(b) all members of the group are located in the United Kingdom, and
(c) the filing member of the group has made an election in a self-assessment return that the underlying profits of all members of the group are to be determined on the basis of UK GAAP.
(3B) Paragraph 1 of Schedule 15 (long term elections) applies to an election under subsection (3A), 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.
;
(aa) section 138 (profits adjusted to be before tax) has effect as if at the end of subsection (2) there were inserted—
(g) a group relief payment so far as excluded (and for that purpose “group relief payment” and “excluded” have the meaning given in section 173(3)).
;
(ab) section 173 (covered taxes) has effect, subject to paragraph (f) below, as if (in addition to the modification made by subsection (4)(a))—
(i) in subsection (1), the “and” after paragraph (c) were omitted and after paragraph (d) there were inserted
, and
(e) a group relief payment so far as it is not excluded.
;
(ii) at the end there were inserted—
(3) For the purposes of subsection (1)(e)—
(a) “group relief payment” means a payment—
(i) in relation to which section 183 or 188FA of CTA 2010 applies to the member, and
(ii) that relates to group relief which the member claims under section 130 or 188CB of that Act by virtue of the group condition being met (see sections 132 and 188CE of that Act);
(b) a group relief payment is “excluded” so far as it exceeds 15% of the agreed loss amounts (within the meaning of section 183 or 188FA of that Act, as the case may be) to which the group relief payment relates.
(4) It follows from subsection (1)(e) that a group relief payment, so far as not excluded, operates to reduce the covered tax balance of the recipient.
(b) section 176 (amounts to be reflected in covered tax balance) has effect as if, for subsection (2)(i) (amounts allocated from another member of the group), there were substituted—
(i) any amount allocated to the member from another member of the group under section 178(1) (reallocation of tax expense).
;
(c) section 178 (reallocation of tax expense) has effect as if—
(i) for subsection (1A) there were substituted—
(1A) But qualifying tax expense in respect of tax imposed by a territory other than the United Kingdom is not to be allocated to O as a result of the allocation of profits under section 167 (hybrids).
;
(ii) subsection (2) (restriction on allocation of tax expense in respect of mobile income) were omitted;
(d) section 179 (controlled foreign companies) has effect as if for subsection (2) there were substituted—
(2) But the amount of qualifying current tax expense in respect of mobile income allocated to F is not to exceed 15% of the adjusted profits of F.
(da) section 182 (total deferred tax adjustment amount) has effect as if in subsection (2)(e), after “credits”, in the first place it occurs, there were inserted “other than qualifying refundable tax credits”;
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(f) section 239(4)(a) (location of entities: tie-breaker by reference to covered taxes) has effect without the modification made by paragraph (ab).
(9) An investment entity is a qualifying investment entity in relation to a qualifying entity if it is
(a) a member of the same group as the qualifying entity, and
(b) located in United Kingdom.
(10) Subsection (11) applies to qualifying entities that are standard members of a group for an accounting period where—
(a) the total top-up amount referred to in section 193 for that period is greater than nil as a result of the modification of that section set out in subsection (3A), and
(b) none of those members have made a profit for that period (and accordingly will not, ignoring subsection (11), have top-up amounts).
(11) Where this subsection applies, each of those members has a top-up amount (for the purposes of domestic top-up tax) equal to the total top-up amount divided by the number of qualifying entities that are standard members of the group.
(1) This section applies where—
(a) a covered bond vehicle that is a member of a group would, ignoring this section, have a top-up amount or an additional top-up amount for an accounting period, and
(b) at least one of the other members of the group in that period—
(i) is located in the United Kingdom, and
(ii) is not a covered bond vehicle.
(2) For domestic purposes, section 193 (calculation of top-up amounts) has effect for the purpose of determining the top-up amounts (and additional top-up amounts) of—
(a) the covered bond vehicle, and
(b) the other members of the group that are located in the United Kingdom,
as if the adjusted profits of the covered bond vehicle were nil.
(3) But subsection (4) applies if none of the members of the group that are located in the United Kingdom, and are not covered bond vehicles, have made a profit for that period (and accordingly will not, ignoring that subsection, have top-up amounts).
(4) Each of those members has a top-up amount equal to the amount given by dividing—
(a) the sum of the top-up amounts and additional top-up amounts that, ignoring subsection (2), each covered bond vehicle located in the United Kingdom would otherwise have, by
(b) the number of those members.
(5) For the purposes of this section “covered bond vehicle” has the meaning given by paragraph 53(7) of Schedule 19 to FA 2011.
273 Determining top-up amounts of entity that is not a member of a group
(1) Chapters 3 to 6, 8 and 9 of Part 3 apply for the purposes (“domestic entity purposes”) of determining whether a qualifying entity that is not a member of a group has top-up amounts or additional top-up amounts, and the extent of those amounts, as they apply for the purpose of determining the same for the purposes of multinational top-up tax.
(2) Chapter 3 of that Part has effect for domestic entity purposes as if for section 132 there were substituted—
Effective tax rate
132 The effective tax rate of a qualifying entity that is not a member of a group is determined as follows—
Step 1
Determine, in accordance with Chapter 4 of Part 3, the adjusted profits for that period of that entity.
Step 2
If, on determining those adjusted profits, the entity has not made a profit, the effective tax rate is to be treated as 15%. Otherwise, proceed to Step 3.
Step 3
Determine the covered tax balance of the entity for the period (which may be negative) in accordance with Chapter 5 of Part 3.
Step 4
If that balance is nil the effective tax rate is 0%. Otherwise, proceed to Step 5.
Step 5
Divide the covered tax balance by the adjusted profits.
Step 6
Except where Step 2 or 4 applies, the effective tax rate of the entity is X%, where X (which will be negative if the covered tax balance is negative) is the result of Step 5 multiplied by 100 and rounded to the nearest fourth decimal place (if it would otherwise have more than four).
(3) That Part has effect for domestic entity purposes as if—
(a) references to “member of a multinational group” (however framed and including references to multiple members) were to “qualifying entity”;
(b) any reference (however framed) to the consolidated financial statements of the ultimate parent were to the qualifying financial statements of the entity;
(ba) in section 182(2)(e), after “credits”, in the first place it occurs, there were inserted “other than qualifying refundable tax credits”;
(c) in section 194 (total top-up amount), subsections (2) to (7) were omitted;
(d) in section 203 (additional top-up amounts: covered taxes less than expected), subsections (3) to (7) were omitted;
(e) in section 206 (additional top-up amounts: recalculations), subsections (4) to (8) were omitted.
(4) Part 3 has effect for those purposes as if the following provisions (which are only relevant to groups or have no relevance for domestic entity purposes) were omitted—
(a) in section 134 (underlying profits as determined for statements of ultimate parent), subsections (2) to (9);
(b) section 135 (permanent establishments);
(c) section 139 (consolidation adjustments);
(d) section 140 (purchase accounting adjustments);
(e) in section 141 (general exclusion of dividends), subsection (3)(c);
(f) section 149 (arm’s length requirement);
(g) section 150 (transactions between group members);
(h) section 154 (exclusion of qualifying intra-group financing arrangement expenses);
(i) sections 159 and 160 (adjustments applicable to permanent establishments);
(j) in section 163 (election to spread capital gains), subsection (3);
(k) section 164 (election to exclude intra-group transactions);
(l) section 167 (underlying profits of member of group seen as transparent);
(m) in section 168 (underlying profits of flow-through entities), subsection (8);
(n) section 169 (non-tax resident entities to be treated as flow-through entities);
(o) section 170 (adjustments for ultimate parent that is flow-through entity);
(p) section 172 (ultimate parent subject to deductible dividend regime);
(pa) in section 173 (covered taxes), subsection (1)(b);
(q) section 177 (allocation of covered taxes: permanent establishments);
(r) section 178 (reallocation of tax expense);
(s) sections 179 and 180 (controlled foreign company tax regimes);
(t) section 181 (distributions from other group members);
(u) section 183 (qualifying foreign tax credits);
(v) sections 189 to 192 (deemed distribution tax election);
(w) sections 208 to 212 (restructuring of groups);
(x) sections 213 to 215 (elections in relation to investment entities);
(y) in section 216 (election where assets and liabilities adjusted to fair value), subsection (6);
(z) sections 226 to 229 (joint venture groups, minority owned members and multi-parent groups).
(z1) Chapter 9A (qualifying undertaxed profits tax).
(1) The provisions mentioned in subsection (2) apply to a qualifying entity, for domestic or domestic entity purposes, as if the references to the first accounting period for which the Pillar Two rules apply were to the first accounting period for which the entity is a qualifying entity.
(2) Those provisions are—
(a) section 185;
(b) section 187;
(d) sub-paragraph (4) of paragraph 2 of Schedule 16 (but see also section 276(c)(iii) which omits that paragraph in the case of a qualifying entity that is not a member of a group).
273B Effect of becoming subject to Pillar Two rules
(1) This section applies where the Pillar Two rules did not apply to a qualifying entity for one or more accounting periods (each a “pre-Pillar Two period”).
(2) Where—
(a) the entity has a recaptured deferred tax liability arising as a result of section 184 (recaptured deferred tax liabilities),
(b) the initial period, in relation to that liability, is a pre-Pillar Two period, and
(c) the first accounting period in which the Pillar Two rules apply to the entity is earlier than the sixth accounting period after the initial period,
section 184(2) (recalculation in initial period taking account of recaptured deferred tax liability) does not apply in relation to that recaptured deferred tax liability.
(3) Where an election under section 187 (election for losses to be treated as special loss deferred tax assets) applied to the entity in a pre-Pillar Two period—
(a) the election ceases to have effect for the first accounting period in which the Pillar Two rules apply, and
(b) subsection (2)(b) of section 187 does not apply to prevent the making of an election under section 187 that applies to the entity and that has effect for that period, but
(c) no remaining amount of special loss deferred tax assets that arose in a pre-Pillar Two period may be used in that first accounting period or any subsequent accounting period.
(4) Subsection (5) or (6) (as the case may be) applies where—
(a) a deferred tax asset arises to the entity in a pre-Pillar Two period,
(b) section 185(7)—
(i) applies to that asset for the purposes of multinational top-up tax, or
(ii) would, ignoring subsection (5) below, apply to that asset for those purposes, and
(c) the asset is reflected in a collective additional amount for the purposes of domestic top-up tax.
(5) Where—
(a) an election has been made under section 205 (election to carry forward) in relation to the collective additional amount,
(b) the subtraction required by subsection (2)(a) of that section has not occurred in a pre-Pillar Two period,
the amount to be subtracted as a result of that subsection is to be reduced by so much of that amount as reflects the asset.
(6) Otherwise, section 185(7) does not apply to the asset for the purposes of multinational top-up tax to the extent it was reflected in a collective additional amount for the purposes domestic top-up tax.
(1) This section applies to a dividend or other distribution made by a protected cell company that is received or accrued by—
(a) a qualifying entity that is not a member of a group, or
(b) a member of a group that has no members located outside of the United Kingdom.
(2) A dividend or other distribution to which this section applies is to be treated as an excluded dividend (see section 141) for domestic purposes and domestic entity purposes.
The transitional provision in Schedule 16 applies in relation to domestic top-up tax as it applies in relation to multinational top-up tax as if—
(a) references in that Schedule to a multinational group were to a group;
(aa) where a qualifying member is a member of a group, for paragraph 3(2)(c) there were substituted—
(c) the election has been made in respect of the territory for each preceding accounting period that commenced on or after 31 December 2023—
(i) in which the Pillar Two rules would, ignoring any transitional safe harbour election, have applied to any member of the group in the territory, and
(ii) in which any member of the group is a qualifying entity for the purposes of domestic top-up tax,
,
(b) where a qualifying entity is a member of a group and all members of the group are located in the United Kingdom, the following provisions of that Schedule (which have no relevance in such a case) were omitted—
(i) paragraph 3(2)(b) and (d), and 3(7) to (9) (country-by-country reporting);
(ii) the words “that are used for preparation of the group’s country-by-country report” in paragraph 4(2);
(iii) paragraph 4(5) (use of statements used for preparation of country-by-country report);
(iv) in paragraph 9(2), the words from “ignoring” to the end.
(c) where a qualifying entity is not a member of a group—
(i) references in that Schedule to a member of a group (however framed and including references to multiple members) were to a qualifying entity;
(ii) references in that Schedule (however framed) to the consolidated financial statements of the ultimate parent were to the qualifying financial statements of the entity;
(iii) paragraph 2 were omitted;
(iiia) for paragraph 3(2)(c) there were substituted—
(c) the election has been made in respect of the territory for each preceding accounting period that commenced on or after 31 December 2023 in which the member was a qualifying entity for the purposes of domestic top-up tax,
,
(iv) the provisions mentioned in paragraph (b)(i) to (iv) were omitted.
See the table in Schedule 17 for a list of terms defined for Part 3, but which also contains some terms defined for this Part, and the provisions that define or explain them.