Finance (No. 2) Act 2023

Certain non tax resident entities to be treated as flow-through entities

Ultimate parent subject to qualifying dividend regime

Application of section 171 to members in the same territory as the ultimate parent

Amount of covered tax balance

Transferable tax credits

176A

• (1) Sections 176B and 176C make provision about “non-marketable transferable tax credits”.

• (2) A tax credit held by a member of a multinational group that is the originator of the credit is a non-marketable transferable tax credit if—

• (a) it may be transferred to another person or entity, and

• (b) it is neither a marketable transferable tax credit nor a qualifying refundable tax credit.

• (3) A tax credit held by a member of a multinational group as a purchaser of the credit is a non-marketable transferable tax credit if it is neither a marketable transferable tax credit nor a qualifying refundable tax credit.

• (4) In this section and in sections 176B and 176C “originator” and “purchaser” are to be construed in accordance with section 148A(1)(a).

176B

• (1) The covered tax balance of a member of a multinational group that holds a non-marketable transferable tax credit as originator is to be adjusted to secure that the value of the credit is reflected as follows.

• (2) The value of the tax credit is to be reflected as it is used.

• (3) If the credit is transferred (after the end of the period of 15 months after the end of the accounting period in which the credit is granted), the consideration for the transfer is to be reflected as a credit in the accounting period in which the transfer occurred.

176C

• (1) The covered tax balance of a member of a multinational group that holds a non-marketable transferable tax credit as purchaser is to be adjusted to secure that the value the credit is reflected as follows.

• (2) On using an amount of the credit, the amount given by subsection (3) is to be reflected as a credit in the covered tax balance for the accounting period in which it is used.

• (3) That amount is the amount given by multiplying—

• (a) the amount used divided by the full value of the credit, by

• (b) the amount given by subtracting the purchase price of the credit from the full value of the credit.

• (4) On transferring the credit, the amount in subsection (5) is—

• (a) if positive, to be reflected as a credit in the covered tax balance for the accounting period in which the transfer occurred, or

• (b) if negative, to be reflected as a loss in the adjusted profits of the member for that period.

• (5) That amount is the amount given by subtracting—

• (a) the sum of—

• (i) the purchase price of the credit, and

• (ii) any amounts recognised ... in the covered tax balance in accordance with subsection (2) (whether in that accounting period or a previous accounting period), from

• (b) the sum of—

• (i) the amount of the credit that has been used, and

• (ii) the consideration for the transfer.

• (6) Where the credit has not been transferred, and was not fully used, before its expiry, the amount in subsection (7) is to be reflected as a loss in the adjusted profits of the member for the accounting period in which the credit expired.

• (7) That amount is the amount given by subtracting—

• (a) the amount of the credit that was used, from

• (b) the sum of the purchase price of the credit and any amounts recognised in accordance with subsection (2).

Tax equity partnerships

176D

• (1) Where—

• (a) a member of a multinational group is an investor in a tax equity partnership arrangement, and

• (b) an election under section 165 (excluded equity gains and losses included) applies in relation to the member for an accounting period,

qualifying flow-through tax benefits provided to the member under that arrangement in that period are to be excluded from the qualifying current tax expense of that member for that period.

• (2) “Flow-through tax benefits” means—

• (a) tax credits, other than qualifying refundable tax credits and marketable transferable tax credits, and

• (b) the value of amounts of tax deductible losses,

that are made available to be used by an investor in a tax equity partnership arrangement under that arrangement (whether or not those credits or losses are used by the investor).

• (3) Section 176E (proportional amortisation method) applies for the purposes of determining the extent to which flow-through tax benefits are “qualifying” where—

• (a) in determining the underlying profits of the investor, the proportional amortisation method is used to account for the arrangement, or

• (b) the filing member of the multinational group of which the investor is a member has elected that section 176E should apply for those purposes in relation to the member and the arrangement.

• (4) Otherwise, section 176F (subtraction method) applies for those purposes.

• (5) For the purposes of this Part, a member of a multinational group is an investor in a tax equity partnership arrangement if—

• (a) the member has made an investment in an entity that is tax transparent in the territory in which the member is located,

• (b) the investment is treated as an equity interest for tax purposes in the territory in which the member is located,

• (c) the investment would, under an authorised accounting standard of the territory in which the entity operates, be treated as an equity interest,

• (d) the entity is not a member of the multinational group, and

• (e) it is reasonable to expect, at the time of making the investment, that the return on the investment would be negative in the absence of the provision of flow-through tax benefits.

• (6) But a member of a multinational group is not to be regarded as an investor in a tax equity partnership arrangement if—

• (a) the investment in the entity does not represent a genuine economic interest in that entity such that the member is exposed to the possibility of a loss on the investment, or

• (b) the territory in which the member is located limits the use of tax equity partnership arrangements to arrangements that involve a multinational group subject to multinational top-up tax or its equivalent under the law of a territory outside the United Kingdom.

• (7) Flow-through tax benefits provided to a member of a multinational group in an accounting period that are not qualifying are to be reflected as a credit in the qualifying current tax expense for that period.

• (8) Flow-through tax benefits (whether qualifying or not) provided to a member of a multinational group are not to be reflected in the underlying profits of that member, even if that would be the effect of the election under section 165.

• (9) For the purposes of subsection (3)(a), the “proportional amortisation method” means a method of accounting under which—

• (a) the initial capital investment in the arrangement is amortised over the term of the investment with the amortisation expense for an accounting period based on the proportion of the flow-through tax benefits expected to be provided over the term of the arrangement that are expected to be provided in that period, and

• (b) the difference between the flow-through tax benefits received in an accounting period and that amortisation expense for that period is reflected as tax expense.

• (10) For the purposes of this section and sections 176E and 176F, the value of an amount of tax deductible losses made available to be used by an investor is given by multiplying that amount by the tax rate that applies to the investor.

• (11) An election under subsection (3)(b)—

• (a) must specify the first accounting period for which it is to have effect, which must be the first relevant period,

• (b) must be made no later than the date by which the information return or overseas return notification in respect of the first relevant period is due,

• (c) must be included in an information return submitted to HMRC or a qualifying authority in respect of the first relevant period,

• (d) has effect for the first relevant period and each subsequent accounting period, and

• (e) cannot be revoked.

• (12) In subsection (11), “the first relevant period” means the later of—

• (a) the first accounting period in which the member is an investor in the tax equity partnership arrangement, and

• (b) the first accounting period for which the Pillar Two rules apply to the member.

176E

• (1) Where this section applies, to determine the extent to which flow-through tax benefits provided to an investor in an accounting period under a tax equity partnership arrangement are qualifying, take the following steps—

• Step 1Determine the amount of capital investment provided by the investor to the arrangement at its commencement.

• Step 2Divide the flow-through tax benefits provided under the arrangement in the accounting period by the total flow-through tax benefits expected (as at the end of the accounting period) to be provided over the whole term of the arrangement.

• Step 3Multiply the result of Step 1 by the result of Step 2.

• Step 4Add the following together—the amounts, if any, of tax credits made available to be used by the investor under the arrangement in the accounting period;the value of the amounts, if any, of tax deductible losses made available to be used by the investor under the arrangement in the accounting period;the amounts, if any, of distributions made to the investor in the accounting period;the amounts, if any, received by the investor for the sale of any part of its investment in the arrangement in the accounting period.

• Step 5If the result of Step 3 is equal to or greater than the result of Step 4, all of the flow-through tax benefits provided under the arrangement in the accounting period are qualifying.Otherwise proceed to Step 6.

• Step 6Subtract the result of Step 3 from the result of Step 4.

• Step 7The amount of the flow-through tax benefits provided under the arrangement in the accounting period that is qualifying is the amount given by reducing the amount of those benefits (but not below nil) by the result of Step 6.

• (2) Accordingly, the amount by which those benefits are reduced in accordance with Step 7 represents non-qualifying flow-through tax benefits which are to be reflected as a credit in the investor’s qualifying current tax expense.

• (3) Subsections (4) to (6) apply in relation to an investor, an arrangement and an accounting period if flow-through tax benefits were provided to the investor under the arrangement in at least one earlier accounting period.

• (4) Where the result of Step 3 in subsection (1) would (but for this subsection) be greater than N, this section has effect as if the result of Step 3 were N.

• (5) To find N—

• (a) identify the amount that was the result of Step 3 in subsection (1) in each earlier accounting period in which flow-through tax benefits were provided to the investor under the arrangement,

• (b) add together all the amounts identified under paragraph (a), and

• (c) subtract the result of paragraph (b) from the result of Step 1 in subsection (1).

The result is N, unless the result is below nil, in which case N is nil.

• (6) A reference in subsection (5)(a) to the result of Step 3 in subsection (1) in an earlier accounting period, where subsection (4) had effect in relation to the earlier period, is to the result of that Step as modified under subsection (4).

176F

Where this section applies, to determine the extent to which flow-through tax benefits provided to an investor in an accounting period under a tax equity partnership arrangement are qualifying, take the following steps—

• Step 1Determine the amount of capital investment provided by the investor to the arrangement at its commencement.

• Step 2Subtract the following from that amount—the amounts, if any, of tax credits made available to be used by the investor under the arrangement since the commencement of the arrangement, other than tax credits— that were made available in the accounting period, andthat are not qualifying refundable tax credits or marketable transferable tax credits;the value of the amounts, if any, of tax deductible losses made available to be used by the investor under the arrangement since its commencement, other than losses made available in the accounting period;the amounts, if any, of distributions made to the investor since the arrangement’s commencement;the amounts, if any, received by the investor for the sale of any part of its investment in the arrangement.

• Step 3If the result of Step 2 is nil or less, no flow-through tax benefits provided under the arrangement in the accounting period are qualifying.If the result of that step is more than nil, proceed to Step 4.

• Step 4Subtract the flow-through tax benefits provided to the investor in the accounting period under the arrangement from the result of Step 2.

• Step 5If the result of Step 4 is nil or greater, all of the flow-through tax benefits provided under the arrangement in the accounting period are qualifying.Otherwise, the amount of those benefits that is qualifying is the amount of those benefits that when subtracted from the result of Step 2 would give a result of nil.

183A

• (1) A special foreign tax asset of a member of a multinational group is to be used to increase its covered tax balance in accordance with this section.

• (2) Subsection (3) applies where—

• (a) the territory in which a member of a multinational group is located requires that domestic losses are offset against relevant foreign income before foreign tax credits can be applied against tax on foreign income,

• (b) the territory limits the extent to which foreign tax credits can be applied against tax in a taxable period,

• (c) the territory allows foreign tax credits to be used to a greater extent where a domestic loss has been used to offset (in whole or in part) relevant foreign income in a prior period, and

• (d) the member has used a domestic loss to offset (in whole or in part) relevant foreign income.

• (3) Where this subsection applies, the member has a special foreign tax asset arising in the accounting period in which the loss was used.

• (4) The amount of that special foreign tax asset is the amount of the domestic loss used to offset relevant foreign income multiplied by the lesser of—

• (a) the nominal rate of tax in the member’s territory for the taxable period in which it was used, and

• (b) 15%.

• (5) Where a member of a multinational group has a special foreign tax asset that arose in any previous accounting period, the member is to use that amount to increase its covered tax balance.

• (6) The amount of the special foreign tax asset that is to be used in an accounting period is the lesser of—

• (a) the amount of the asset, and

• (b) so much of the amount of foreign tax credits credited against tax in the taxable period corresponding to that accounting period as is capable of being credited only as a result of the prior use of the domestic loss.

Any remainder continues to be a special foreign tax asset (and is available for use in subsequent account periods where subsection (5) applies).

197A

• (1) Subsection (2) applies where—

• (a) a member of a multinational group holds property located in the same territory as the member in an accounting period,

• (b) that property is held for lease by the member, and

• (c) the lease is accounted for in the underlying profits accounts of the member as an operating lease for that period.

• (2) The operating lease is to be regarded as an eligible tangible asset of the member for that period (despite the exclusion in section 197(7)(a)).

• (3) But where the property is not a short-term rental asset for that period, any carrying value of the operating lease recorded at the start or the end of the period is to be reduced by the right-of-use amount for the property at that time for the purposes of carrying out the calculation in section 197(1).

• (4) In a case where the lessee is a member of the same multinational group as the lessor, the right-of-use amount in relation to the property at the start or the end of the period is the carrying value of the lessee’s right-of-use asset in relation to the property recorded at that time.

• (5) Where the lessee is not a member of the same multinational group as the lessor, the right-of-use amount in relation to the property at the start or end of the period is the undiscounted value of any outstanding payments under the lease at that time.

• (6) In determining the value of those outstanding payments—

• (a) apply the accounting standard used in determining the underlying profits of the member,

• (b) include the value of any outstanding payments that would be due under any extension to the lease that would fall to be accounted for in accordance with that standard.

• (7) For the purposes of this section, property held for lease is a short-term rental asset in an accounting period if—

• (a) the property was leased regularly during that period to different lessees, and

• (b) the average length of the periods for which it was leased does not exceed 30 days.

198A

• (1) The Treasury may by regulations make provision about the treatment of payroll costs and tangible assets in specified circumstances.

• (2) Regulations may, in particular, provide that in determining the substance based income exclusion for a territory—

• (a) specified eligible tangible assets or eligible payroll costs are to be treated as having a different value;

• (b) specified eligible tangible assets or eligible payroll costs are to be attributed to a different member of a multinational group or to a different territory;

• (c) specified eligible tangible assets or eligible payroll costs are to be excluded from that determination;

• (d) specified assets that are not eligible tangible assets are to be treated as eligible tangible assets;

• (e) specified costs that are not eligible payroll costs are to be treated as eligible payroll costs.

• (3) In this section “specified” means specified or described in regulations.

Top-up amounts multiplied by inclusion ratio

Inclusion ratio

Covered taxes balance less than nil when members in a territory have a profit

Additional top-up amounts where covered taxes less than expected

Allocation of collective additional amount under section 203 to members

Election to carry forward and reduce collective additional amount

Additional top-up amounts where recalculations required

Allocation of collective additional amounts under section 206 to members

Member joining or leaving multinational group

When transfer of controlling interest treated as acquisition of assets and liabilities

Transfer of assets or liabilities from a member of a multinational group

Meaning of “qualifying reorganisation”

Taxable distribution method election

Undistributed income amount

Election where assets and liabilities adjusted to fair value for tax purposes

Effect of rate changes to deferred tax expense

Adjustment where covered taxes not paid

Substance based income exclusion for investment entity

Adjustments

Additional top-up amounts of investment entities

Attribution of top-up amounts and additional top-up amounts to responsible member

Joint venture group

Application of Part to joint venture groups

Multi-parent groups

Meaning of entity

232A

• (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).

251A

• (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.

256A

• (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.

Transitional provision and safe harbours

Index of defined expressions

Power to amend to ensure consistency with Pillar Two

Regulations

Multinational top-up tax to apply from 31 December 2023

Qualifying entities

267A

• (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.

268A

Section 232A (partnerships) applies for the purposes of this Part as it applies for the purposes of Part 3.

272A

• (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.

273A

• (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

• (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.

273C

• (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.

Charge on exceptional generation receipts

Benchmark amount

Attribution of generation

Generation receipts

Exceptional generation fuel costs

Exceptional revenue sharing costs

Lead member of a group and its qualifying periods

Liability of members of groups

Election for members with significant minority shareholding to pay levy

Qualifying joint ventures

Non-chargeable amounts of joint venture to be attributed to participants

Generation acquired and supplied by JV participants

Arrangements that reflect receipts (JV participants)

Generation acquired and supplied by significant minority shareholders

Arrangements that reflect receipts (significant minority shareholders)

Surrender of shortfalls

Amount that may be surrendered and use of that amount

Election to treat certain companies as transparent

Effect of company being transparent

General application of corporation tax administration

Company tax returns

Requirement to provide information about payments

Claims to shortfall amounts

Application of Part 5A of TMA 1970 and Instalment Payments Regulations

Anti-avoidance

311A

• (1) Generating plant is “qualifying new generating plant” if it is new generating plant commissioned as part of a qualifying project that meets the new investment condition.

• (2) The new investment condition is met in relation to a qualifying project if on 21 November 2023 it was reasonable to conclude, having regard to all of the circumstances, that there is a significant likelihood of the project not proceeding.

• (3) The Treasury may by regulations provide for cases in which qualifying projects are to be treated as meeting the new investment condition.

• (4) “Qualifying project” means a project to commission—

• (a) new generating plant for—

• (i) a new generating station, or

• (ii) an existing generating station which (as a result of the project) is to be wholly or substantially comprised of new generating plant, or

• (b) new generating plant that increases the generating capacity of an existing generating station.

• (5) Subsection (6) applies where new generating plant that increases the generating capacity of an existing generating station replaces existing generating plant.

• (6) Only so much of the new generating plant as represents generating capacity in excess of the capacity of the generating plant it replaces is to be regarded as qualifying new generating plant.

Transactions funded with the assistance of a public subsidy

Deposit schemes

Dumping, subsidisation and safeguarding remedies

Rulings as to method of valuation of goods

Discharging goods from free-circulation procedure subject to guarantee

Excepted machines etc

Rates of tobacco products duty

Flavour concentrates

New bands and rates

Northern Ireland rates

Rates of vehicle excise duty

Reform of HGV road user levy

End of exempt period for HGV road user levy

Rates of climate change levy

Rate of plastic packaging tax

Aggregates levy: exemptions and exploitation

Designation of sites

Sunset date for reliefs

Right to repayment of income tax to be inalienable

Penalties for failure to pay value added tax

VAT credits: repayment interest due where evidence not provided

Insurance premium tax: power to make regulations about notifications

Penalties for failure to make payments of plastic packaging tax on time

Approval of aerodromes

Approved aerodromes: minor and consequential amendments

Temporary approvals etc

Licensing authorities: requirements to give or obtain tax information

Section 342: consequential amendments

Definition of “charity” restricted to UK charities

Definition of “community amateur sports club” restricted to UK clubs

Exemptions from tax

Abolition of the Office of Tax Simplification

Pension benefits and inheritance tax

International arrangements for exchanging information

Payment of unclaimed money in court into the Consolidated Fund

Financial sanctions regulations: prohibition on certain payments by HMRC

Communications data

Interpretation

Short title

Requirement to make claim notifications in relation to certain R&D claims

Relief for R&D expenditure on data and cloud computing

Relief for R&D expenditure on data and cloud computing: consequential amendments

Determining the worldwide group: consequential amendment

Power of HMRC to collect overpaid R&D tax relief or expenditure credit

Time limits for R&D claims

Requirement to provide additional information in relation to R&D claims

Power of HMRC to remove R&D claims made in error from return

Amendment of CTA 2009

R&D tax relief: circumstances in which enterprises are treated as SMEs

Accounts treated as prepared on going concern basis

Meaning of expenditure incurred on payments

The applicable rate for grossing up basic amounts of estate income

The applicable rate for grossing up for determining shares in an estate in the final tax year

Income from stock dividends etc treated as bearing income tax at 0%

Income treated as dividend income and savings income

Order in which basic amounts are treated as paid from aggregate income

The applicable rate for grossing up basic amounts of estate income

The applicable rate for grossing up for determining shares in an estate in the final tax year

Income from stock dividends etc treated as bearing income tax at 0%

Order in which basic amounts are treated as paid from aggregate income

Low income estates and trusts: tax liability of personal representatives and trustees

Low income estates: tax liability of beneficiaries

Introduction

Tax-interest expense amounts of a company: charities

First period of account where new holding company

Amounts not brought into account in determining a company’s tax-EBITDA

“Relevant expense amount” and “relevant income amount”

Adjusted net group-interest expense: debits referable to times before UK property business etc carried on

Adjusted net group-interest expense: debits in respect of pre-trading expenditure

Qualifying net group-interest expense: meaning of “equity notes”

Capitalised interest brought into account for tax purposes in accordance with GAAP

Interest allowance (non-consolidated investment) election: “non-consolidated associate”

Public infrastructure

Partnerships and other transparent entities

Investments held by investment managers

Determining the worldwide group: “non-consolidated subsidiary” and “consolidated subsidiary”

Appointment of a reporting company by Revenue and Customs

Revised interest restriction return

Enquiry into interest restriction return

Determinations by officers of Revenue and Customs

Consequential claims to company tax returns

Penalties for errors: CIR alterations to be ignored in calculating potential lost revenue

Disapplication of carry forward rule for deficits

Defined expressions used in Part 10 of TIOPA 2010: “insurance company”

Determining the worldwide group: consequential amendment

Genuine diversity of ownership

Amendment of CTA 2010

REITs involving single commercial property

3-year development rule

Genuine diversity of ownership

Amendment of the Real Estate Investment Trusts (Assessment and Recovery of Tax) Regulations 2006

Amendment of Schedule 2 to FA 2022

Securitisation companies unable to be QAHCs

Beneficial entitlement held only through QAHCs

Determining relevant interests

Dealing with bodies corporate without share capital

Genuine diversity of ownership

Investment strategy condition

Disposal of derivatives where underlying subject matter is shares

Alternative finance arrangements

Records to be kept for the purposes of corporation tax

Assessments relating to corporation tax

Records to be kept for the purposes of income tax

Assessments relating to income tax

Penalties for errors

Information and inspection powers

Beer

33A

• (1) Where a person has paid an amount that has been paid by way of multinational top-up tax but the amount is not due, the amount incurs interest at the rate provided for in regulations made under section 178 of FA 1989 from the later of—

• (a) the day after the latest day (under paragraph 32) by which the amount paid would have been required to be paid as multinational top-up tax if it were due, and

• (b) the day on which the amount was paid.

• (2) See paragraph 51 for provision about making claims for the repayment of an amount that is not tax that was due (but see also paragraph 52 which, for example, prevents such a claim being made where an amendment to an assessment can be, or could have been, made).

37A

• (1) An officer of Revenue and Customs may issue a partnership payment notice if an amount of multinational top-up tax payable by a member of a multinational group that is a partnership (including any interest on that amount) is not paid by the end of the period of three months beginning with the relevant date (see paragraph 34(7) to (9)).

• (2) A partnership payment notice may be issued to any person (wherever in the world they are located) who—

• (a) is a partner, or

• (b) was a partner at any time in the accounting period to which the amount payable relates.

• (3) A partnership payment notice is a notice requiring the recipient to pay an outstanding amount of multinational top-up tax payable by a member of the group that is a partnership by a date specified in the notice.

• (4) Sub-paragraphs (4) to (9) of paragraph 34 and paragraph 36 apply to a partnership payment notice as they apply to a group payment notice.

• (5) In this paragraph and in paragraph 37B, reference to a partner, in the case of a limited partnership, is to a general partner.

37B

• (1) This paragraph applies where a partner of a member of a multinational group that is a partnership (the “payer”) makes a payment in respect of the liability to pay multinational top-up tax of the partnership (whether or not in consequence of a partnership payment notice).

• (2) The payer may recover the amount from the other partners.

• (3) In calculating the payer's income, profits or losses for tax purposes—

• (a) the payment is not allowed as a deduction, and

• (b) the reimbursement of any such payment is not to be regarded as a receipt.

• (4) The payment or its reimbursement—

• (a) is not (otherwise) to be taken into account in calculating the profits or losses of for corporation tax or income tax purposes of either the payer or the other partners, and

• (b) is not to be regarded as a distribution for income tax or corporation tax purposes.

• (5) The amount paid by the payer is to be taken into account in calculating—

• (a) the amount of multinational top-up tax unpaid by the partnership, and

• (b) the amount due by virtue of a partnership payment notice relating to the amount unpaid.

• (6) Similarly, any payment by the partnership or by any of the other partners of any of the amount unpaid is to be taken into account in calculating the amount due by virtue of a partnership payment notice (or by virtue of any other partnership payment notice relating to the amount unpaid).

• (7) In this paragraph, “for tax purposes” means for the purposes of income tax, corporation tax, multinational top-up tax or domestic top-up tax.

Long term elections

Annual elections

Intra-group transfers before entry into regime

Part 3 — Transitional reporting election

13

• (1) HMRC may publish a notice that provides for alternative requirements for the information that must be contained in an information return in respect of members of a multinational group to which an election under sub-paragraph (3) applies.

• (2) Where—

• (a) HMRC have published a notice under paragraph (1) containing alternative requirements, and

• (b) an election under sub-paragraph (3) applies to members of a multinational group for an accounting period,

paragraph 10 of Schedule 14 applies to the filing member of the group for that period subject to the notice.

• (3) An election under this sub-paragraph—

• (a) is to be made in respect of all of the members of a multinational group in a territory,

• (b) is to be made by the filing member of the group,

• (c) may only have effect in relation to an accounting period that begins on or before 31 December 2028 and ends before 1 July 2030, and

• (d) may only be made if condition A, B or C is met.

• (4) Condition A is that none of the members in the territory have top-up amounts or additional top-up amounts for the accounting period to which the election is to apply.

• (5) Condition B is that—

• (a) there is only one responsible member responsible for all of the members in the territory for the accounting period to which the election is to apply, and

• (b) the sum of amounts attributed under Chapter 7 of Part 3 to that responsible member for that period in respect of those members’ top-up amounts and additional top-up amounts is equal to the sum of the members’ top-up amount and additional top-up amounts.

• (6) Condition C is that—

• (a) there is more than one responsible member responsible for the members of the group in the territory for the accounting period to which the election is to apply, and

• (b) each responsible member is responsible for every member of the group in the territory and has the same inclusion ratio for each member it is responsible for.

• (7) Paragraph 2 of Schedule 15 (annual elections) applies to an election under this paragraph.

Schedule 16A

Part 1 — Qualifying domestic top-up tax safe harbour

Chapter 1 — Qualifying domestic top-up tax safe harbour election

1

• (1) The filing member of a multinational group may make a qualifying domestic top-up tax safe harbour election for an accounting period in respect of a territory.

• (2) The effect of the election is that all of the standard members of the group located in the territory are to be treated as not having top-up amounts or additional top-up amounts for the purpose of determining the liability of any member of the group to multinational top-up tax.

• (3) An election is only valid for an accounting period if—

• (a) a qualifying domestic top-up tax applies in that territory for that period,

• (b) that tax is accredited for the purposes of the election (see paragraph 2), ...

• (ba) the accreditation applies to the accounting period, and

• (c) none of the disqualifying conditions in paragraph 3 apply for that period.

• (4) Paragraph 2 of Schedule 15 (annual elections) applies to an election under this paragraph.

2

• (1) A qualifying domestic top-up tax is accredited for the purposes of an election under paragraph 1 if that tax is specified as such in , or in accordance with, regulations made by the Treasury.

• (1A) Regulations may provide for the accreditation of a tax by specification in a notice published by the Commissioners for His Majesty’s Revenue and Customs in accordance with the regulations.

• (1B) Regulations, or a notice, must identify the accounting periods to which the accreditation applies.

• (1C) Regulations under this paragraph may provide for the accreditation of a tax to have effect from a time before the tax was specified (but may not provide for the accreditation of a tax to cease to have effect in relation to accounting periods commencing before the regulations are made).

• (2) A qualifying domestic top-up tax is to be treated as accredited for the purposes of any accounting period that concluded before the first regulations under this paragraph have been made if—

• (a) the tax falls within Chapter 5.5 to 5.7 of the QDMTT safe harbour guidance, or

• (b) it is reasonable to conclude that the tax is likely to fall within Chapter 5.5 to 5.7 of that guidance.

• (3) For the purposes of sub-paragraph (2) the “QDMTT safe harbour guidance” means Chapter 5 of Tax Challenges Arising from the Digitalisation of the Economy – Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two), July 2023, published by the OECD on 17 July 2023.

3

• (1) Conditions A to D are disqualifying conditions for the purposes of paragraph 1(3)(c) in relation to a multinational group and a territory.

• (2) Condition A is that—

• (a) the ultimate parent is located in the territory,

• (b) the ultimate parent is a flow-through entity, and

• (c) the qualifying domestic top-up tax applying in the territory—

• (i) does not generally impose a charge on the ultimate parent as a result of it being a flow-through entity, and

• (ii) does not include provision for a charge to be imposed on the ultimate parent in circumstances where there would otherwise be an amount of tax that was not charged to any member of the group in that territory.

• (3) Condition B is that—

• (a) a responsible member of the group is located in the territory,

• (b) the member is not the ultimate parent of the group,

• (c) the member is a flow-through entity, and

• (d) the qualifying domestic top-up tax applying in the territory—

• (i) does not generally impose a charge on the member as a result of it being a flow-through entity, and

• (ii) does not include provision for a charge to be imposed on the member in circumstances where there would otherwise be an amount of tax that was not charged to any member of the group in that territory.

• (4) Condition C is that—

• (a) the qualifying domestic top-up tax applying in the territory provides that it does not apply to a multinational group in the initial phase of the group’s international expansion,

• (b) that provision is not limited in application to circumstances where the members of a multinational group in the territory are not subject to Pillar Two rules, and

• (c) that provision applies to the group.

• (5) Condition D is that the enforceability of an amount of qualifying domestic top-up tax accruing to a standard member of the group is in question.

• (6) Subsections (3), (4) and (6) of section 256A (qualifying domestic top-up tax treated as not accruing where contested) apply for the purpose of determining whether the enforceability of an amount of qualifying domestic top-up tax is in question.

Chapter 2 — Application to non-standard members of a multinational group

4

• (1) For the purpose of applying Chapter 1 of this Part of this Schedule to a joint venture group (see section 227 which applies this Schedule generally, with modifications, to joint venture groups), that Chapter has effect as if in paragraph 3—

• (a) in sub-paragraph (1), for “Conditions A to D” there were substituted “Conditions A to E”,

• (b) after sub-paragraph (6), there were inserted—

(7) Condition E is that the qualifying domestic top-up tax applying in the territory— (a) does not generally impose a charge on ... members of a joint venture group, and (b) does not include provision for a charge to be imposed on such members in circumstances where there would otherwise be an amount of tax that was not charged to any member of the group in that territory.

• (2) For that purpose ignore section 227(1)(a) (reference to ultimate parent treated as reference to joint venture parent).

• (3) Accordingly, the filing member of a multinational group may make a separate qualifying domestic top-up tax safe harbour election in respect of joint venture members of a joint venture group in a territory.

5

• (1) Chapter 1 of this Part of this Schedule to applies to investment entities and has effect for that purpose as if—

• (a) references to standard members of a multinational group were to members of the group that are investment entities, and

• (b) in paragraph 3—

• (i) in sub-paragraph (1), for “Conditions A to D” there were substituted “Conditions A to E”,

• (ii) after sub-paragraph (6), there were inserted—

(7) Condition E is that the qualifying domestic top-up tax applying in the territory— (a) does not generally impose a charge on members of the group that are investment entities, and (b) does not include provision for a charge to be imposed on such members in circumstances where there would otherwise be an amount of tax that was not charged to any member of the group in that territory.

• (2) Accordingly, the filing member of a multinational group may make a separate qualifying domestic top-up tax safe harbour election in respect of members of the group that are investment entities.

6

• (1) Chapter 1 of this Part of this Schedule to applies to minority owned members of a multinational group and has effect for that purpose as if references to standard members of a multinational group were to members of the group that are minority owned members.

• (2) Accordingly, the filing member of a multinational group may make a separate qualifying domestic top-up tax safe harbour election in respect of minority owned members of the group.

Introduction

Meaning of “filing member”

Registration

Other administrative provisions

Amendments: penalties

Other amendments

Notification etc

Introduction

Meaning of “soft drink” and “package”

Meaning of “prepared drinks”

Sugar content condition

Exempt soft drinks

Levy rates

Tax credits

Commencement

FA 2003

CAA 2001

FA 2021

National Insurance Contributions Act 2022

Income tax and corporation tax

Annual tax on enveloped dwellings

Stamp duty land tax

Regulations

137A

• (1) Where any provision of this Part requires the substitution of a value recorded in the underlying profits accounts of a member of a multinational group for an accounting period, the substituted value—

• (a) is to be used for all purposes of this Part instead of the value recorded in the accounts (for example, where the carrying value of an asset has been substituted and the value of that asset is relevant to the member’s deferred tax expense, that substituted value is to be used in connection with determining that expense), and

• (b) is to be updated (for example, in making adjustments for depreciation for subsequent accounting periods),

in each case, in accordance with the accounting standard used in determining the underlying profits of the member.

• (2) But where the value in question is the value of an asset, no adjustments for impairment are to be made to it.

• (3) Where the impaired value of an asset recorded in the underlying profits accounts for any accounting period is less than the substituted value of the asset for that period, use the value from the underlying profits accounts instead for that period and all subsequent periods (and subsection (2) does not apply in relation to that value).

176G

• (1) This section applies to an investor in a tax equity partnership arrangement if—

• (a) qualifying flow-through tax benefits are excluded under section 176D(1) from the investor’s covered tax balance for an accounting period, and

• (b) the investor has an excess return from the arrangement in a later accounting period (“the later period”).

• (2) For the purpose of determining the investor’s covered tax balance for the later period, the investor’s qualifying current tax expense for that period is to be adjusted (after the steps in section 174(1) have been taken) by subtracting the clawback amount.

• (3) “The clawback amount” is determined as follows—

• Step 1Determine the total amount of the qualifying flow-through tax benefits provided to the investor under the arrangement in accounting periods before the later period.

• Step 2Subtract from the result of Step 1 the total of any amounts subtracted under subsection (2) from the investor’s qualifying current tax expense for accounting periods before the later period.

• Step 3Compare the result of Step 2 with the amount of the investor’s excess return from the arrangement in the later period.Whichever is less is the clawback amount.

• (4) For the purposes of this section, an investor has an “excess return” from an arrangement in an accounting period—

• (a) where section 176E applies, if the result of Step 6 in section 176E(1) exceeds the amount of the flow-through tax benefits provided under the arrangement in the accounting period, in which case the amount of the excess return is the amount of the excess;

• (b) where section 176F applies and the investor did not have an excess return from the arrangement in an earlier accounting period, if the result of Step 2 in that section is less than nil, in which case the amount of the excess return is the amount by which it is less than nil;

• (c) where section 176F applies and the investor had an excess return from the arrangement in an earlier accounting period, if the result of Step 2 in that section is less than it was in the last accounting period in which the investor had an excess return from the arrangement, in which case the amount of the excess return is the amount of the difference.

180A

• (1) Where the filing member of the multinational group mentioned in section 180(8)(a) has made a transitional safe harbour election under paragraph 3 of Schedule 16 for the relevant period in respect of the territory mentioned in section 180(8)(a), for the purposes of that section the effective tax rate of the members of the group in respect of which the election applies is to be taken to be the simplified effective tax rate of the standard members of the multinational group (as defined in paragraph 8 of Schedule 16)).

• (2) Where the filing member of the multinational group mentioned in section 180(8)(a) has made a transitional safe harbour election under paragraph 10 of Schedule 16 (application in the case of joint venture group) for the relevant period in respect of the territory mentioned in section 180(8)(a), for the purposes of that section the effective tax rate of the members of the group in respect of which the election applies is to be taken to be the simplified effective tax rate of the standard members of that multinational group (as defined in paragraph 8 of Schedule 16).

• (3) Subsection (4) has effect where the filing member of a particular multinational group mentioned in section 180(8)(a) has made one or more separate elections under any of paragraphs 1, 4, 5 and 6 of Schedule 16A for the relevant period in respect of the territory mentioned in section 180(8)(a).

• (4) For the purposes of section 180, the effective tax rate of any member or set of members to which a particular election mentioned in subsection (4) relates is to be the rate (expressed as a percentage) given by dividing—

• (a) the aggregate tax expense of that member or set of members used to determine the effective tax rate for the purposes of the qualifying domestic top-up tax applying in the territory for the accounting period, together with any amounts of qualifying domestic top-up tax paid of that member or set of members, by

• (b) the income of that member or set of members determined for the purposes of the qualifying domestic top-up tax.

• (5) In this section “relevant period” is to be interpreted in accordance with section 180(2)(a).

181A

• (1) Qualifying current tax expense is to be allocated between standard members of a multinational group in a territory in which a cross-crediting regime applies and standard members of the group in another territory in accordance with the cross-crediting regime methodology.

• (2) A cross-crediting regime applies in a territory if, under the law of that territory, taxes paid with respect to one source of income arising in another territory give rise to foreign tax credits which can be used against another source of income arising in a further territory.

• (3) The “cross-crediting regime methodology” means—

• (a) provisions of regulations made under section 262(1)(a) (power to make further provision about the application of provisions of this Part etc) identified in the regulations as the cross-crediting regime methodology, or

• (b) where no cross-crediting regime methodology is identified in any such regulations, the methodology described in the cross-crediting guidance.

• (4) The “cross-crediting guidance” means Chapter 3.1 of Tax Challenges Arising from the Digitalisation of the Economy – Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two), June 2024 published by the OECD on 17 June 2024.

• (5) Where subsection (3)(b) applies, the cross-crediting guidance has effect as cross-crediting regime methodology with all necessary modifications for that purpose (for example, reference to a Five-Year Election is to be read as an election to which paragraph 1 of Schedule 15 (long term elections) applies).

• (6) This Chapter is to have effect with such modifications as are necessary to give effect to the cross-crediting regime methodology.

Cross-border allocation of deferred tax expense

181B

• (1) Deferred tax assets and liabilities are to be allocated between standard members of a multinational group in one territory and standard members of the group in another territory in accordance with the deferred taxes methodology.

• (2) The “deferred taxes methodology” means—

• (a) provisions of regulations made under section 262(1)(a) (power to make further provision about the application of provisions of this Part etc) identified in the regulations as the deferred taxes methodology, or

• (b) where no deferred taxes methodology is identified in any such regulations, the methodology described in the cross-border deferred taxes guidance.

• (3) The “cross-border deferred taxes guidance” means Chapter 4.2 of Tax Challenges Arising from the Digitalisation of the Economy – Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two), June 2024 published by the OECD on 17 June 2024.

• (4) Where subsection (2)(b) applies, the cross-border deferred taxes guidance has effect as deferred taxes methodology with all necessary modifications for that purpose (for example, reference to a Five-Year Election is to be read as an election to which paragraph 1 of Schedule 15 (long term elections) applies).

• (5) This Chapter is to have effect with such modifications as are necessary to give effect to the deferred taxes methodology.

198ZA

• (1) A member of a multinational group that is a flow-through entity has a flow-through payroll amount for a territory for an accounting period if the member has costs that would be eligible payroll costs if the member were located in that territory and were not a flow-through entity and—

• (a) there is at least one other member of the group—

• (i) that is not a flow-through entity,

• (ii) that is located in that territory, and

• (iii) to whom a proportion of the underlying profits of the flow-through entity for the accounting period are allocated under section 168 (underlying profits of transparent entities) or, where the underlying profits of the entity are nil or less, would be so allocated if the flow-through entity had underlying profits of 100 euros, or

• (b) the entity—

• (i) is a flow-through entity to some extent for that period as a result of section 169 (certain non tax resident entities to be treated as flow-through entities),

• (ii) is not a flow-through entity to some extent for that period, and

• (iii) was created in that territory.

• (2) Section 196 applies for the purposes of determining a flow-through payroll amount of a flow-through entity for a territory as it applies for the purposes of determining eligible payroll costs but as if—

• (a) any reference in that section to the territory of the member were to the territory to which the flow-through payroll amount relates, and

• (b) subsection (7) of that section were omitted.

• (3) Where a member of a multinational group that is a flow-through entity has a flow-through payroll amount for a territory for an accounting period, the eligible payroll costs of each member of the group falling within subsection (1)(a) for that period (which may be nil) are to be increased by the amount given by multiplying the flow-through payroll amount by the relevant proportion in relation to that member for that period.

• (4) The relevant proportion in relation to a member for an accounting period is the proportion of the underlying profits of the flow-through entity for that period—

• (a) in a case where the flow-through entity has underlying profits that exceed nil for that period, that is allocated to that member under section 168, or

• (b) in a case where the underlying profits of the flow-through entity for that period are nil or less, that would be allocated to that member if the flow-through entity had underlying profits of 100 euros.

• (5) Where a flow-through entity—

• (a) is a flow-through entity to some extent for an accounting period as a result of section 169,

• (b) is not a flow-through entity to some extent for that period, and

• (c) was created in a territory for which it has a flow-through payroll amount for that period,

the eligible payroll costs of that entity for that period (which may be nil) are to be increased by the amount given by multiplying that flow-through payroll amount by the relevant proportion in relation to that entity for that period.

• (6) The relevant proportion in relation to that entity for an accounting period is the proportion of the underlying profits of the entity for that period—

• (a) in a case where the entity has underlying profits that exceed nil for that period, that are not allocated to any other entity under section 168, or

• (b) in a case where the underlying profits of the entity for that period are nil or less, that would not be allocated to any other entity under that section if the entity had profits of 100 euros.

• (7) For the purposes of applying this section in relation to a multinational group whose ultimate parent is a flow-through entity, the ultimate parent is to be treated as not being a flow-through entity.

198ZB

• (1) A member of a multinational group that is a flow-through entity that is not the ultimate parent has a flow-through tangible asset amount for a territory for an accounting period if the member holds one or more assets in that territory and—

• (a) there is at least one other member of the group—

• (i) that is not a flow-through entity,

• (ii) that is located in that territory, and

• (iii) to whom a proportion of the underlying profits of the flow-through entity for the accounting period are allocated under section 168 (underlying profits of transparent entities) or, where the underlying profits of the entity are nil or less, would be so allocated if the flow-through entity had underlying profits of 100 euros, or

• (b) the entity—

• (i) is a flow-through entity to some extent for that period as a result of section 169 (certain non tax resident entities to be treated as flow-through entities),

• (ii) is not a flow-through entity to some extent for that period, and

• (iii) was created in that territory.

• (2) Sections 197 and 197A apply for the purposes of determining a flow-through tangible asset amount of a flow-through entity for a territory as they apply for the purposes of determining an eligible tangible asset amount but as if—

• (a) any reference in those sections to the territory of the member were to the territory to which the flow-through tangible asset amount relates, and

• (b) subsection (10) of section 197 were omitted.

• (3) Where a member of a multinational group that is a flow-through entity has a flow-through tangible asset amount for a territory for an accounting period, the eligible tangible asset amount of each member of the group falling within subsection (1)(a) for that period (which may be nil) is to be increased by the amount given by multiplying the flow-through tangible asset amount by the relevant proportion in relation to that member for that period.

• (4) The relevant proportion in relation to a member for an accounting period is the proportion of the underlying profits of the flow-through entity for that period—

• (a) in a case where the flow-through entity has underlying profits that exceed nil for that period, that is allocated to that member under section 168, or

• (b) in a case where the underlying profits of the flow-through entity for that period are nil or less, that would be allocated to that member if the flow-through entity had underlying profits of 100 euros.

• (5) Where a flow-through entity—

• (a) is a flow-through entity to some extent for an accounting period as a result of section 169,

• (b) is not a flow-through entity to some extent for that period, and

• (c) was created in a territory for which it has a flow-through tangible asset amount for that period,

the eligible tangible asset amount of that entity for that period (which may be nil) is to be increased by the amount given by multiplying that flow-through tangible asset amount by the relevant proportion in relation to that entity for that period.

• (6) The relevant proportion in relation to that entity for an accounting period is the proportion of the underlying profits of the entity for that period—

• (a) in a case where the entity has underlying profits that exceed nil for that period, that are not allocated to any other entity under section 168, or

• (b) in a case where the underlying profits of the entity for that period are nil or less, that would not be allocated to any other entity under that section if the entity had profits of 100 euros.

• (7) For the purposes of applying this section in relation to a multinational group whose ultimate parent is a flow-through entity, the ultimate parent is to be treated as not being a flow-through entity.

198ZC

• (1) In determining for an accounting period the eligible payroll costs or eligible tangible asset amount of a flow-through entity that is the ultimate parent of a multinational group, the amount given by section 196 or 197 is to be reduced by the section 170 proportion.

• (2) In subsection (1), “the section 170 proportion” means the proportion of the adjusted profits of the flow-through entity for the accounting period that—

• (a) in a case where subsection (1) of 170 (adjustments for ultimate parent that is a flow-through entity) applies, is excluded under that subsection, or

• (b) in a case where that subsection does not apply as a result of the entity having not made a profit for that period, would be excluded under that subsection if the entity had adjusted profits of 100 euros.

• (3) In subsection (2), “the adjusted profits” means the adjusted profits before the application of section 170.

Chapter 9A — Untaxed amounts

Introduction

229A

• (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).

229B

• (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.

Allocation of untaxed amounts

229C

• (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, or

• (b) a member of a joint venture group.

229D

• (1) Take the following steps to determine the UK proportion of an untaxed amount of a member of a multinational group—

• Step 1Determine 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 2Determine 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 3Divide the result of Step 1 by the result of Step 2.

• Step 4Determine the value of tangible fixed assets of the qualifying members of the group located in the United Kingdom for the relevant period.

• Step 5Determine 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 6Divide the result of Step 4 by the result of Step 5.

• Step 7Add together the results of Step 3 and Step 6 and divide that sum by 2.

• Step 8The 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.

229E

• (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 1Determine the number of employees of the member in the accounting period (“the relevant period”) to which the untaxed amount relates.

• Step 2Determine the total number of employees for the relevant period of qualifying members of the group located in the United Kingdom.

• Step 3Divide the result of Step 1 by the result of Step 2.

• Step 4Determine the value of tangible fixed assets of the member for the relevant period.

• Step 5Determine the value of tangible fixed assets for the relevant period of the qualifying members of the group located in the United Kingdom.

• Step 6Divide the result of Step 4 by the result of Step 5.

• Step 7Add together the results of Step 3 and Step 6 and divide that sum by 2.

• Step 8The 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

• (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.

How to determine number of employees and tangible fixed assets values

Number of employees

229G

• (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 1Determine the number of full-time employees of that member that were full-time employees for the whole of that period.

• Step 2Determine, 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 3Add 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 4Where 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).