Legalize / United Kingdom / Public General Act

Finance (No. 2) Act 2023

Type Public General Act

Publication 2023-07-11

Last updated 2025-05-01

State In force

Department Statute Law Database

Source legislation.gov.uk

articles Not indexed

Reform history JSON API

(4) A demand made for the purposes of this section is to be combined, as if there had been a default of a kind mentioned in section 12 of FA 1994 (assessments to excise duty) with an assessment and notification under that section of the amount of duty due in consequence of the demand.

Inspection of premises etc

96

(1) An officer of Revenue and Customs may, at any reasonable time—

(a) enter and inspect the premises of a person authorised by regulations under section 92 to receive denatured alcohol,

(b) inspect and examine any denatured alcohol on the premises, and

(c) take samples of any denatured alcohol or of any goods containing denatured alcohol (paying a reasonable price for each sample).

(2) Subsection (1) does not affect any other power conferred by the customs and excise Acts.

Groups

97

(1) It is an offence for a person—

(a) to prepare, or attempt to prepare, denatured alcohol for use as a beverage or as a mixture with a beverage;

(b) to sell denatured alcohol (whether or not prepared as described in paragraph (a)) as a beverage or mixed with a beverage;

(c) to use any denatured alcohol or a derivative of it in the preparation of any article capable of being used as a beverage;

(d) to sell or possess any article capable of being used as described in paragraph (c), in the preparation of which denatured alcohol or any derivative of it has been used;

(e) except as permitted by the Commissioners and in accordance with any conditions imposed by them—

(i) to purify, or attempt to purify, denatured alcohol, or

(ii) after denatured alcohol has once been used, to attempt to recover the spirit or alcohol contained in it by distillation, condensation or in any other manner.

(2) Subsection (1) is subject to subsections (5) and (6).

(3) A person who commits an offence under this section is liable on summary conviction to a penalty not exceeding level 3 on the standard scale.

(4) Any denatured alcohol, or any article (including packaging or equipment), in respect of which an offence under this section is committed is liable to forfeiture.

(5) No offence is committed under this section where a person uses denatured alcohol or any derivative of it—

(a) in the preparation for use as a medical article (as defined in section 76),

(b) in the making of anything sold or supplied in accordance with regulations made by the Commissioners under section 92, or

(6) No offence is committed under this section where a person sells or possesses anything that—

(a) is permitted to be prepared or made, by reference to paragraph (a) or (b) of subsection (5), for a use described in that paragraph, and

(b) is sold or possessed for that use.

(7) In this section, references to denatured alcohol include references to—

(a) methanol, and

(b) any mixture containing denatured alcohol or methanol.

Chapter 7 — Wholesaling of controlled alcoholic products

Definitions

98

(1) This section defines certain expressions used in this Chapter.

(2) A sale is of “controlled alcoholic products” if—

(a) it is a sale of alcoholic products on which alcohol duty is charged under this Part at a rate greater than nil, and

(b) the excise duty point for the alcoholic products falls at or before the time of the sale.

(3) Controlled alcoholic products are sold “wholesale” if—

(a) the sale is of any quantity of the alcoholic products,

(b) the seller is carrying on a trade or business and the sale is made in the course of that trade or business,

(c) the sale is to a buyer carrying on a trade or business, for sale or supply in the course of that trade or business, and

(d) the sale is not an incidental sale, a group sale or an excluded sale,

and a reference to buying controlled alcoholic products wholesale is to be read accordingly.

(4) A sale is an “incidental sale” if—

(a) the seller makes authorised retail sales of alcoholic products of any description, and

(b) the sale is incidental to those sales.

(5) A sale is an “authorised retail sale” if it is made by retail under and in accordance with a licence or other authorisation under an enactment regulating the sale and supply of alcohol.

(6) A sale is a “group sale” if the seller and the buyer are both bodies corporate which are members of the same group (see section 106).

(7) A sale is an “excluded sale” if it is of a description specified by or under regulations made by the Commissioners.

(8) “Controlled activity” means—

(a) selling controlled alcoholic products wholesale,

(b) offering or exposing controlled alcoholic products for sale in circumstances in which the sale (if made) would be a wholesale sale, or

(c) arranging in the course of a trade or business for controlled alcoholic products to be sold wholesale, or offered or exposed for sale in circumstances in which the sale (if made) would be a wholesale sale.

(9) “UK person” means a person who is UK-established for the purposes of value added tax (see paragraph 1(10) of Schedule 1 to VATA 1994).

(10) “Enactment” includes an enactment contained in—

(a) an Act of the Scottish Parliament;

(b) an Act or Measure of Senedd Cymru;

(11) References in this Chapter to the “alcohol wholesaling provisions” are references to this section and sections 99 to 106, and Schedule 10.

Further provision relating to definitions

99

(1) The Commissioners may by regulations make provision as to the cases in which sales are, or are not, to be treated for the purposes of this Chapter as—

(a) wholesale sales,

(b) sales of controlled alcoholic products,

(d) authorised retail sales, or

(e) group sales.

(2) The Commissioners may by regulations make provision as to the cases in which a person is, or is not, to be treated for the purposes of this Chapter as carrying on a controlled activity by virtue of section 98 (8)(b) or (c).

Approval to carry on controlled activity

100

(1) A UK person may not carry on a controlled activity otherwise than in accordance with an approval given by the Commissioners under this section.

(2) The Commissioners may approve a person under this section to carry on a controlled activity only if they are satisfied that the person is a fit and proper person to carry on the activity.

(3) The Commissioners may approve a person under this section to carry on a controlled activity for such period as they think fit.

(4) An approval may be given subject to the conditions or restrictions (if any)—

(a) specified by the Commissioners in a notice published by them;

(b) specified by or under regulations made by them;

(5) The conditions or restrictions may include conditions or restrictions requiring the controlled activity to be carried on only at or from premises specified or approved by the Commissioners.

(6) The Commissioners may at any time revoke or vary the terms of an approval under this section.

(7) In this Chapter “approved wholesaler” means a person approved under this section to carry on a controlled activity.

The register of approved wholesalers

101

(1) The Commissioners must maintain a register of approved wholesalers.

(2) The register is to contain such information relating to approved wholesalers as the Commissioners consider appropriate.

(3) The Commissioners may make publicly available such information contained in the register as they consider necessary to enable those who deal with a person who carries on a controlled activity to determine whether the person in question is an approved wholesaler for the purposes of that activity.

(4) The information may be made available by such means as the Commissioners consider appropriate.

Qualifying partnerships

102

(1) The Commissioners may by regulations make provision—

(a) regulating the approval and registration of persons under the alcohol wholesaling provisions,

(b) regulating the variation or revocation of any such approval or registration or of any condition or restriction to which such an approval or registration is subject,

(d) regulating the carrying on of controlled activities, and

(e) imposing obligations on approved wholesalers.

(2) The regulations may, in particular, make provision—

(a) requiring applications, and other communications with the Commissioners, to be made electronically;

(b) as to the procedure for the approval and registration of bodies corporate which are members of the same group and for members of such a group to be jointly and severally liable for any penalties imposed under—

(i) the regulations, or

(ii) Schedule 10;

(c) requiring approved wholesalers to keep and make available for inspection such records relating to controlled activities as may be specified by or under the regulations;

(d) conferring powers on an officer of Revenue and Customs to inspect, copy or remove for a reasonable period those records;

(e) imposing a penalty of an amount specified by the regulations (which must not exceed £1,000) for a contravention of—

(i) the regulations, or

(ii) any condition or restriction imposed under the alcohol wholesaling provisions;

(f) for the assessment and recovery of such a penalty;

(g) for alcoholic products (whether or not charged with any duty and whether or not that duty has been paid) to be subject to forfeiture for a contravention of—

(i) the alcohol wholesaling provisions or the regulations made under this section, or

(ii) any condition or restriction imposed under the alcohol wholesaling provisions.

Restriction on buying controlled alcoholic products wholesale

103

(1) A person may not—

(a) buy controlled alcoholic products wholesale from a UK person, unless the person is an approved wholesaler in relation to the sale, or

(b) buy relevant alcoholic products from an Isle of Man person, unless the person is an Isle of Man approved wholesaler.

(2) In this section and in section 104 (4)—

(a) “Isle of Man person” means a person who is established in the Isle of Man for the purposes of value added tax under any provision of the law in force in the Isle of Man corresponding to paragraph 1(10) of Schedule 1 to VATA 1994;

(b) “Isle of Man approved wholesaler” means an Isle of Man person who is approved under any provision of the law in force in the Isle of Man corresponding to section 100;

(c) “relevant alcoholic products” means alcoholic products which, if they had been produced in the United Kingdom, would have been charged with alcohol duty under this Partat a rate greater than nil.

Offences

104

(1) A person who contravenes section 100 (1) by selling controlled alcoholic products wholesale commits an offence if the person knows or has reasonable grounds to suspect that—

(a) the buyer is carrying on a trade or business, and

(b) the alcoholic products are for sale or supply in the course of that trade or business.

(2) A person who contravenes section 100 (1) by offering or exposing controlled alcoholic products for sale in circumstances in which the sale (if made) would be a wholesale sale commits an offence if the person intends to make a wholesale sale of the alcoholic products.

(3) A person who contravenes section 100 (1) by arranging in the course of a trade or business for controlled alcoholic products to be sold wholesale, or offered or exposed for sale in circumstances in which the sale (if made) would be a wholesale sale, commits an offence if the person intends to arrange for the alcoholic products to be sold wholesale.

(4) A person who contravenes section 103 commits an offence if the person knows or has reasonable grounds to suspect that—

(a) the UK person from whom the controlled alcoholic products are bought is not an approved wholesaler in relation to the sale, or

(b) the Isle of Man person from whom the relevant alcoholic products are bought is not an Isle of Man approved wholesaler in relation to the sale.

(5) A person who commits an offence under this section is liable on summary conviction—

(a) in England and Wales to—

(i) imprisonment for a term not exceeding the general limit in a magistrates’ court,

(ii) a fine, or

(iii) both,

(b) in Scotland to—

(i) imprisonment for a term not exceeding 12 months,

(ii) a fine not exceeding the statutory maximum, or

(iii) both, and

(i) imprisonment for a term not exceeding 6 months,

(ii) a fine not exceeding the statutory maximum, or

(iii) both.

(6) A person who commits an offence under this section is liable on conviction on indictment to—

(a) imprisonment for a period not exceeding 7 years,

(b) a fine, or

Penalties

105

Schedule 10 contains provision about penalties for contraventions of the alcohol wholesaling provisions.

Groups

106

(1) Two or more bodies corporate are members of a group for the purposes of the alcohol wholesaling provisions if each is established or has a fixed establishment in the United Kingdom and—

(a) one of them controls each of the others,

(b) one person (whether a body corporate or an individual) controls all of them, or

(2) For the purposes of this section, a body corporate is to be taken to control another body corporate if—

(a) it is empowered by or under an enactment to control that body’s activities, or

(b) it is that body’s holding company within the meaning of section 1159 of, and Schedule 6 to, the Companies Act 2006.

(3) For the purposes of this section—

(a) an individual or individuals are to be taken to control a body corporate if the individual or individuals (were the individual or individuals a company) would be that body’s holding company within the meaning of section 1159 of, and Schedule 6 to, the Companies Act 2006 (meaning of “subsidiary” etc), and

(b) a body corporate is established or has a fixed establishment in the United Kingdom if it is so established or has such an establishment for the purposes of value added tax.

Index of defined expressions: Chapter 7

107

The following Table sets out expressions defined or explained for the purposes of this Chapter—

Expression	Provision
alcohol wholesaling provisions	section 98 (11)
approved wholesaler	section 100 (7)
authorised retail sale	section 98 (5)
controlled activity	section 98 (8)
enactment	section 98 (10)
group (in relation to bodies corporate)	section 106 (1)
group sale	section 98 (6)
incidental sale	section 98 (4)
Isle of Man person and Isle of Man approved wholesaler	section 103 (2)(a) and (b)
relevant alcoholic products (for the purposes of sections 103 and 104 (4))	section 103 (2)(c)
sale of controlled alcoholic products	section 98 (2)
UK person	section 98 (9)
wholesale	section 98 (3)

Chapter 8 — Supplementary

Reviews and appeals

108

Schedule 11 makes provision about reviews and appeals.

Forfeiture: supplementary provision

109

(1) An officer of Revenue and Customs may destroy, break up or spill anything seized as liable to forfeiture under any provision of this Part.

(2) Subsection (1) does not affect any other provision of, or power conferred by, the customs and excise Acts.

Removal of goods: application of section 95 of CEMA 1979

110

(1) Section 95 of CEMA 1979 (deficiency in goods occurring in course of removal from warehouse without payment of duty) is amended as follows.

(2) After subsection (1) insert—

(1A) Subsection (1) applies in relation to goods that are alcoholic products as if references, in that subsection and in section 94, to a “warehouse” included references to premises in respect of which a person is authorised, under section 82 of the Finance (No. 2) Act 2023, to hold alcoholic products without payment of duty (and references to “warehoused” are to be construed accordingly). (1B) Subsection (1) applies (as modified by subsection (1A)) in relation to alcoholic products on which alcohol duty has been remitted as it applies to alcoholic products lawfully permitted to be taken from premises as mentioned in that subsection.

(3) In subsection (2), in the words before paragraph (a), after “subsection (1)” insert “, (1A) or (1B)”.

Drawback

111

(1) This section applies where drawback of alcohol duty is allowable, under regulations made under section 60A of CEMA 1979 (power to make regulations about stores) or section 2 of F(No. 2)A 1992 (power to provide for drawback of excise duty), to a person who produces alcoholic products in accordance with an approval under section 82 (“the producer”).

(2) Subject to the conditions (if any) that the Commissioners impose, drawback of alcohol duty may be set against any amount to which the producer is chargeable in respect of alcohol duty (and any reference in CEMA 1979 to drawback payable is to be construed in accordance with this section).

Duty stamps

112

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Chapter 9 — repeals, further amendments and transitional provisions

Repeals and further amendments

Repeals

113

(1) The Alcoholic Liquor Duties Act 1979 is repealed.

(2) The following sections of FA 1995 are repealed—

(a) section 4 (alcoholic ingredients relief);

(b) section 5 (denatured alcohol).

Minor and consequential amendments

114

Schedule 13 makes minor and consequential amendments relating to this Part.

Transitional provision

Temporary provision: wine

115

(1) Wine of an alcoholic strength of at least 11.5% but not exceeding 14.5% is treated, for the purposes of the charge to alcohol duty, as if it were of an alcoholic strength of 12.5%.

(2) This section expires at the end of the period of 18 months beginning with the day on which section 48 (rates) comes into force.

Temporary provision: cider

116

Alcohol duty is not charged on cider which is produced—

(a) at a time before section 82 (approvals) comes into force, and

(b) by a person who, at that time, is exempt from the requirement to register under section 62 of ALDA 1979 by reason of an order made (or having effect as if made) under subsection (3) of that section.

Chapter 10 — Final provisions

Interpretation of this Part

117

(1) The following Table sets out expressions defined or explained in this Part for general purposes—

Expression	Provision
alcohol	section 45 (5)
alcoholic products	section 44 (1) and (2)
alcoholic strength	section 45 (1)
beer	Schedule 6, paragraph 3
cider	Schedule 6, paragraph 5
denatured alcohol	section 90
excise duty point	section 49
other fermented product	Schedule 6, paragraph 12
qualifying draught product	section 51 (1)
spirits	Schedule 6, paragraph 1
wine	Schedule 6, paragraph 11

(2) This Part is to be construed as one with the Customs and Excise Acts 1979.

(3) Any expression used in this Act or in any instrument made under this Act to which a meaning is given by any other Act included in the Customs and Excise Acts 1979 has, except where the context otherwise requires, the same meaning in this Act or any such instrument as in that Act.

Regulations: supplementary and general

118

(1) The Commissioners may by regulations make provision supplementing provision made in relation to alcohol duty by or under this Part or any other enactment.

(2) A power to make regulations under any provision of this Part may be exercised so as to make different provision for different purposes or areas.

(3) A power to make regulations under any provision of this Part includes power to make—

(a) provision which applies generally or only for specified cases or purposes;

(b) provision conferring a discretion on a specified person to do anything under, or for the purposes of, the regulations;

(d) consequential, supplementary, incidental, transitional or saving provision.

(4) Regulations under this Part are to be made by statutory instrument.

(5) This section does not apply to regulations under section 120.

Regulations: procedure

119

(1) A statutory instrument containing any regulations made under section 46 (a) or section 51 (5) must be laid before the House of Commons, and, unless approved by that House before the end of the period of 28 days beginning with the date on which the instrument is made, ceases to have effect at the end of that period.

(2) The fact that a statutory instrument ceases to have effect as a result of subsection (1) does not affect—

(a) anything previously done under the instrument, or

(b) the making of a new statutory instrument.

(3) In calculating the period for the purposes of subsection (1), no account is to be taken of any time—

(a) during which Parliament is dissolved or prorogued, or

(b) during which the House of Commons is adjourned for more than 4 days.

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) A statutory instrument containing regulations made under this Part, other than regulations in respect of which subsection (1) ... applies, is subject to annulment in pursuance of a resolution of the House of Commons.

(6) A statutory instrument containing regulations to which subsection (1) applies may also include regulations relating to alcohol duty under any other provision of the customs and excise Acts (including any provision of this Part) if the Parliamentary procedure applicable to a statutory instrument containing regulations under the other provision does not require House of Commons approval.

(7) Where regulations are included as mentioned in subsection (6), the procedure applicable to the statutory instrument is the procedure mentioned in subsection (1) (and not the procedure mentioned in subsection (6)).

(8) If—

(a) a statutory instrument contains regulations under any provision of this Part (other than regulations in respect of which subsection (1) ... applies) and regulations relating to alcohol duty under any other provision of the customs and excise Acts, and

(b) the Parliamentary procedure applicable to a statutory instrument containing provision under the other provision does not require House of Commons approval,

the only Parliamentary procedure applicable to a statutory instrument mentioned in paragraph (a) is that given by this section.

(9) For the purposes of subsection (6) and subsection (8) the Parliamentary procedure applicable to a statutory instrument requires House of Commons approval if, as a condition of its continuing to have effect or its making, the House of Commons has to approve the statutory instrument or a draft of it.

(10) This section does not apply to regulations under section 120.

Commencement

120

(1) The following provisions of this Part come into force on the day on which this Act is passed—

(a) this Chapter, and

(b) any other provision of this Part so far as it confers a power to make regulations.

(2) The other provisions of this Part (so far as not brought into force by subsection (1)) come into force on such day or days as the Commissioners may by regulations appoint.

(3) Different days may be appointed for different purposes or different areas.

(4) The Commissioners may by regulations make consequential, supplementary, incidental, transitional or saving provision in connection with the coming into force of any provision of this Part.

(5) The power to make regulations under subsection (4)—

(a) may be exercised so as to make different provision for different purposes or areas, and

(b) includes power to make provision of a kind described in section 118 (3)(a) to (c).

(6) Regulations under this section are to be made by statutory instrument.

Part 3 — Multinational top-up tax

Chapter 1 — Introduction and charge

Introduction to multinational top-up tax

121

(1) The purpose of this Part is to implement the provisions of the Pillar Two rules relating to top-up tax under the IIR and UTPR (within the meaning of the Pillar Two rules).

(2) For that purpose, this Part makes provision for a tax payable in respect of members of multinational groups who are located in territories (outside the United Kingdom) where their rate of tax (as determined in accordance with this Part) is less than 15%.

(3) The tax is to be known as “multinational top-up tax”.

(4) Sections 122 to 124 set out the charge to multinational top-up tax and describe how it is to be calculated.

(5) Chapter 2 of this Part—

(a) sets out the meaning of “multinational group”;

(b) describes who the members of such a group are;

(d) limits the application of this Part to multinational groups with an annual revenue of at least 750 million euros and that have at least one member in the United Kingdom (such a group is referred to in this Part as “qualifying”);

(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chargeable persons

122

(1) A person is chargeable to multinational top-up tax for an accounting period of a multinational group if the group is a qualifying multinational group in that period and—

(a) the person—

(i) is a ... member of the multinational group at any time in that period,

(ii) is a body corporate or a partnership ..., and

(iii) is located in the United Kingdom, or

(b) the person is chargeable to tax in respect of an entity that is a ... member of the multinational group at any time in that period.

(2) A person is chargeable to tax in respect of a ... member of a multinational group if—

(a) the profits of the ... member would, on the relevant assumptions, be the profits of the person for the purposes of income tax or corporation tax,

(b) the ... member is located in the United Kingdom, and

(i) a body corporate, or

(ii) a partnership ....

(3) The relevant assumptions are—

(a) that the ... member has profits that are chargeable to income tax or corporation tax, and

(b) that the person is resident in the United Kingdom for the purposes of that tax.

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7) Where more than one person is chargeable to tax in relation to the same ... member of a qualifying multinational group as a result of the application of subsection (2), each of those persons is jointly and severally liable to multinational top-up tax.

Amount charged by reference to “top-up amounts”

123

(1) A person chargeable to tax as, or in respect of, a member of a multinational group (“the relevant member”) is charged multinational top-up tax for an accounting period if one or more members of the group have top-up amounts or additional top-up amounts for that period and—

(a) the relevant member is a responsible member for one or more of those members (see section 128), or

(b) one or more of those members have untaxed amounts that are allocated to the relevant member (see Chapter 9A).

(2) The amount charged is the sum of the following—

(a) where subsection (1)(a) applies—

(i) top-up amounts attributed to the relevant member in accordance with Chapter 7, and

(ii) additional top-up amounts attributed to the relevant member in accordance with that Chapter, and

(b) where subsection (1)(b) applies, the untaxed amounts allocated to the relevant member in accordance with Chapter 9A.

(3) The amount charged (which in accordance with section 254 will be expressed in the CFS currency) is to be converted to sterling using the average exchange rate for the accounting period (if the CFS currency is not sterling).

How to calculate top-up amounts and attribute them

124

(1) Generally, a member of a multinational group in a territory will have a top-up amount for an accounting period if—

(a) the effective tax rate of the members of the group in that territory for that period is less than 15%, and

(b) that member has profits for that period.

(2) Chapter 3 of this Part sets out how to determine the effective tax rate of the members of a multinational group in a territory by reference to the profits of, and the taxes payable by, those members in that territory.

(3) Chapter 4 of this Part sets out how to calculate the profits of members of a multinational group.

(4) Chapter 5 of this Part sets out—

(a) which taxes (referred to in this Part as “covered taxes”) are to be considered in determining the effective tax rate of those members, and

(b) how to determine the amount of covered taxes allocated to those members.

(5) Chapter 6 of this Part sets out how to use the effective tax rate and profits of the members of a multinational group to determine the top-up amounts of those members.

(6) Chapter 7 of this Part sets out how to attribute those top-up amounts to a responsible member of the group.

(7) Chapter 8 of this Part contains provisions about—

(a) additional top-up amounts, and

(b) further adjustments that may need to be made (including provision about adjustments for restructuring of multinational groups).

(8) Chapter 9 of this Part sets out special provision for investment entities, joint venture groups and minority owned members (including provision that applies to those entities instead of provision in the previous Chapters).

(8A) Chapter 9A makes provision for—

(a) determining whether members of the group have untaxed amounts, and

(b) allocating those untaxed amounts to members of the group located in the United Kingdom, other than members that are investment entities or joint venture group members.

(9) Chapter 10 of this Part contains definitions and other provisions relevant to the calculations and other determinations to be made for the purposes of multinational top-up tax and Chapter 11 contains general provision.

Administration of multinational top-up tax

125

Schedule 14 makes provision for—

(a) information returns which must be made in respect of multinational groups,

(b) assessments to multinational top-up tax,

(d) other administrative matters.

Chapter 2 — Qualifying multinational groups and their members

Multinational groups

Meaning of “multinational group” and “ultimate parent”

126

(1) References in this Part to a multinational group are to a consolidated group where at least one of the members of that group is not located in the same territory as the others.

(2) A “consolidated group” means the following entities (which are its members)—

(a) an entity (the “ultimate parent”)—

(i) in which no other entity has a controlling interest, and

(ii) which has a controlling interest in other entities, and

(b) the entities whose assets, liabilities, income, expenses and cash flows—

(i) are included in the consolidated financial statements of the ultimate parent, or

(ii) are not included in those statements only because of an exclusion on size or materiality grounds or on the grounds that the entity in question is held for sale.

Excluded entities

127

(1) For the purposes of this Part, excluded entities are to be treated as not being members of a multinational group.

(2) But subsection (1) does not apply for the purposes of the following provisions—

(a) section 126 (and accordingly an excluded entity that is the ultimate parent of multinational group remains the ultimate parent of that group),

(b) this section, and

(3) The following are excluded entities—

(a) a governmental entity;

(b) an international organisation;

(d) a non-profit organisation;

(e) a qualifying non-profit subsidiary;

(f) a qualifying service entity;

(g) a qualifying exempt income entity.

(4) The following are also excluded entities if they are the ultimate parent of a multinational group, or would be but for the fact they do not produce consolidated financial statements that include assets, liabilities, income expenses and cash flows of entities in which they have ownership interests—

(a) an investment fund,

(b) a UK REIT, or

(5) An entity is a qualifying non-profit subsidiary in an accounting period if—

(a) the entity or, in the case of a permanent establishment, the main entity is 100% owned by one or more entities that are non-profit organisations,

(b) the revenue (see section 129(5)) of the multinational group of which the entity is a member, excluding the revenues of each member that is a non-profit organisation, a qualifying service entity or a qualifying exempt income entity—

(i) would not exceed the threshold set out in section 129(4), and

(ii) is less than 25% of the total revenue of the group, and

(d) no election under subsection (8) is in force in relation to the entity.

(6) An entity is a qualifying service entity if—

(a) the entity or, in the case of a permanent establishment, the main entity is 95% owned by one or more qualifying excluded entities,

(b) either—

(i) the entity only carries out activities that are ancillary to the activities of those owners, or

(ii) all, or almost all, of its activities, ignoring activities falling within sub-paragraph (i), consist of the holding of assets or the investment of funds for the benefit of those owners, and

(7) An entity is a qualifying exempt income entity if—

(a) the entity or, in the case of a permanent establishment, the main entity is 85% owned by one or more qualifying excluded entities,

(b) almost all of the entity’s income is excluded dividends or excluded equity gains (or a mixture of both), and

(8) The filing member of a multinational group (see paragraph 2 of Schedule 14) may make an election that a member of that group that would otherwise be an excluded entity as a result of subsection (5), (6) or (7) is not to be an excluded entity.

(9) Schedule 15 makes provision about elections under this Part.

(10) Paragraph 1 of that Schedule (long term elections) applies to an election under subsection (8).

(11) For the purposes of subsection (5), the reference to an entity being 100% owned by one or more entities that are non-profit organisations is to those entities together having that percentage of ownership interest in that entity.

(12) For the purposes of subsections (6) and (7)—

(a) despite section 232 (3) (permanent establishments treated as distinct from main entity), the conditions in subsection (6)(b) and (7)(b) are only met in relation to a permanent establishment or a main entity if the conditions are met by the main entity and all of its permanent establishments taken together as if they were a single entity;

(b) an excluded entity is “qualifying” if it is not a pension services entity, and

(c) references to an entity being 95% or 85% owned by qualifying excluded entities are to those entities together having at least that percentage of the ownership interests in that entity (see section 245 for how to calculate ownership interests in excluded entities).

Responsible members

128

(1) The ultimate parent of a multinational group is a responsible member of that group if it is subject to Pillar Two IIR tax.

(2) An ultimate parent that is a responsible member of a multinational group is responsible for all of the members of the group that are not located in the territory the ultimate parent is located in.

(3) An intermediate parent member of a multinational group (see section 237 (2)) that is located in a Pillar Two territory is a responsible member of that group if it is subject to Pillar Two IIR tax and—

(a) no intermediate parent member of that group that is subject to Pillar Two IIR tax has a controlling interest in it,

(b) the ultimate parent is not subject to Pillar Two IIR tax, and

(c) at least one member of the group in which it has an ownership interest, or a permanent establishment for which it is the main entity, has a top-up amount or an additional top-up amount.

(4) Such an intermediate parent member is responsible for —

(a) every permanent establishment for which it is the main entity, and

(b) all of the members of the group it has an ownership interest in that are not located in the territory it is located in.

(5) A partially-owned parent member of a multinational group (see section 237 (1)) that is located in a Pillar Two territory is a responsible member if it is subject to Pillar Two IIR tax and—

(a) it is not wholly owned by another partially-owned parent member of that group that is subject to Pillar Two IIR tax, and

(b) at least one member of the group in which it has an ownership interest, or a permanent establishment for which it is the main entity, has a top-up amount or an additional top-up amount.

(6) Such a partially owned parent member is responsible for —

(a) every permanent establishment for which it is the main entity, and

(b) all of the members of the group it has an ownership interest in that are not located in the same territory it is located in.

(7) For the purposes of this Part an entity is subject to Pillar Two IIR tax for an accounting period if—

(a) the period commences on or after 31 December 2023 and the entity is located in the United Kingdom and is not an excluded entity, or

(b) the entity—

(i) is located in another Pillar Two territory in which a tax equivalent to the IIR provisions of multinational top-up tax is in force for the period, and

(ii) is not excluded from the application of that tax as a result of provision equivalent to section 127.

(8) In this section the “IIR provisions of multinational top-up tax” means the provisions of this Part relating to the charging of top-up amounts and additional top-up amounts (but not untaxed amounts).

Qualifying multinational groups

129

(1) For the purposes of this Part, a multinational group is “qualifying” in an accounting period if conditions A and B are met.

(2) Condition A is that the group’s members have revenue that exceeds the threshold set out in subsection (4) in at least 2 accounting periods of the previous 4 accounting periods.

(3) Condition B is that at least one of the group’s members is located in the United Kingdom.

(4) The threshold for an accounting period is the amount given by multiplying 750 million euros by the amount given by dividing the number of days in the accounting period by 365.

(5) For the purposes of this section, and section 127 (5), the revenue of the members of a multinational group for a period is to be determined by reference to the consolidated financial statements of the ultimate parent for that period.

Change in composition of multinational group

130

(1) This section applies for the purpose of determining whether condition A in section 129 (2) is met by a multinational group in an accounting period (“the qualifying period”) where its composition has changed—

(a) in that period, or

(b) during the previous 4 accounting periods (“the testing period”).

(2) Reference in subsection (1) to a change in the composition of a multinational group includes its formation as a result of the acquisition by one entity of ownership interests in another.

(3) Where a member of the multinational group was not a member of any consolidated group in one or more of the accounting periods in the testing period—

(a) its revenues for those accounting periods are to be determined by reference to its financial statements or any consolidated financial statements in which its revenue is included (and, if necessary, apportioned on a just and reasonable basis to those accounting periods), and

(b) those revenues are to be treated as forming part of the revenues of the multinational group in those periods (whether or not the group existed in those periods).

(4) Where a multinational group is the result of a merger of two or more consolidated groups in the qualifying period or the testing period, for each accounting period of those periods in which they were separate groups, add together the revenues of each consolidated group for that period (determined by reference to the consolidated financial statements of the ultimate parent of each group and if necessary, apportioned on a just and reasonable basis to the accounting period of the merged group) to determine whether the threshold in section 129 (4) is met for that period.

(5) For the purposes of this section “merger” means any arrangement that results in all, or substantially all, of the members of two or more consolidated groups becoming members of a single consolidated group.

Whether de-merged groups meet the revenue threshold

131

(1) Where a multinational group is the result of a qualifying de-merger (“a de-merged group”), section 129 has effect in relation to that group for its first accounting period that ends after the de-merger, and in the 3 accounting periods that follow it as if for subsection (2) there were substituted—

(2) A de-merged group meets condition A ...— (a) in its first accounting period that ends after the de-merger, if its members have revenue for that period that exceeds the threshold set out in section 129 (4), and (b) in any of the second to fourth accounting periods ending after the de-merger, if its members have revenue that exceeds the threshold set out in that section in any two of the following periods— (i) that period; (ii) any of the accounting periods that precede that period and end after the de-merger.

(2) In this section “qualifying de-merger” means the separation of members of a relevant multinational group into two or more consolidated groups in an accounting period of the relevant multinational group, such that those members cease to all be consolidated by the same ultimate parent.

(3) A multinational group is relevant in an accounting period if—

(a) it meets condition A in section 129(2) for that period (revenue threshold exceeded in at least 2 of previous 4 accounting periods), and

(b) Pillar Two rules apply to any member of the group for that period.

Chapter 3 — Effective tax rate of members of a multinational group in a territory

Effective tax rate

132

(1) The effective tax rate of the standard members of a multinational group in a territory for an accounting period is determined as follows—

Step 1Determine, in accordance with Chapter 4, the adjusted profits for that period of each standard member of that group in that territory.

Step 2Subtract the sum of the losses of those members of the group that made a loss in that period from the sum of the profits of those members of the group that made a profit in that period.

Step 3If the result of Step 2 is nil or less, the effective tax rate is to be treated as 15%. Otherwise, proceed to Step 4.

Step 4Determine the combined covered tax balance for the standard members of the group in that territory (which may be negative).

Step 5If that balance is nil the effective tax rate is 0%. Otherwise, proceed to Step 6.

Step 6Divide the combined covered tax balance by the result of Step 2.

Step 7Except where Step 3 or 5 applies, the effective tax rate of the standard members of that group is X% where X (which will be negative if the combined covered tax balance is negative) is the result of Step 6 multiplied by 100.

(2) The combined covered tax balance for standard members of a multinational group in a territory is—

(a) where those members only have positive covered tax balances (see Chapter 5), the sum of those balances,

(b) where those members only have negative covered tax balances (see that Chapter), the sum of those balances expressed as a negative number, or

(c) where those members have a mixture of positive covered tax balances and negative covered tax balances, the amount (which may be positive or negative) given by subtracting the sum of those negative covered tax balances from the sum of those positive covered tax balances.

Section 174 contains provision about the determination of covered tax balances of members of multinational groups.

(3) For the purposes of this Part—

(a) a member of a multinational group is a “standard member” if it is not—

(i) an investment entity, or

(ii) a minority owned member, and

(b) a stateless member of a multinational group is to be treated as being the sole member of the group located in a nominal territory.

Chapter 4 — Calculation of adjusted profits of members of a multinational group

Adjusted profits of a member of a multinational group

133

(1) For the purposes of this Part, references to the adjusted profits of a member of a multinational group are to the underlying profits of that member adjusted in accordance with this Chapter and (to the extent applicable) Chapter 8.

(2) Sections 134 to 137 set out how to determine the underlying profits.

(3) Sections 138 to 158 set out various adjustments that may need to be made to those profits.

(4) Sections 159 and 160 set out adjustments to be made in relation to members that are permanent establishments.

(5) Sections 161 to 164 make provision for elections for certain matters to be calculated in an alternative manner.

(6) Sections 167 to 171 set out adjustments in relation to transparent and hybrid entities and entities subject to a “qualifying dividend regime”.

(7) Other provisions of this Part may require further adjustments of underlying profits, including provision in—

(a) Chapter 9 (investment entities), and

(b) Schedule 16 (transitional provision).

Underlying profits as determined for statements of ultimate parent

134

(1) The normal rule is that the underlying profits of a member of a multinational group, other than a member that is a permanent establishment, are the member’s profits as they would be determined for that member in preparing consolidated financial statements for the ultimate parent.

(2) But those profits may instead be determined on the basis of an alternative accounting standard, and information in the separate financial accounts of the member, if all of the conditions in subsection (3) are met.

(3) Those conditions are that—

(a) it is not reasonably practicable to determine those profits on the basis of the accounting standard used in the preparation of the consolidated financial statements of the ultimate parent,

(b) the alternative accounting standard is an acceptable accounting standard or an authorised accounting standard,

(d) the information in those accounts is reliable.

(4) Where an alternative accounting standard is used and an amount relevant to the underlying profits of a member of a multinational group is recorded in a currency other than the currency used for the consolidated financial statements of the ultimate parent, that amount is to be converted to that currency for the purposes of this Part.

(5) Subsection (6) applies where the application of a particular policy of the alternative accounting standard in the determination of the profits of the member results in a significant accounting standard difference that would not arise if the accounting standard of the ultimate parent had been applied.

(6) The underlying profits are to be adjusted to eliminate that difference (as if the accounting standard of the ultimate parent had been applied).

(7) Information in the financial accounts of the member is “reliable” if an auditor applying the generally accepted auditing standards of a relevant territory would reasonably conclude the member has in place such processes relating to their preparation as are likely to make the information in the financial accounts a fair and accurate description of the income, expenses, assets and liabilities of that member.

(8) For the purposes of subsection (7), the following are relevant territories—

(a) the territory in which the member is located;

(b) the territory in which the ultimate parent is located;

(c) if the member is a flow-through entity (see section 168 (2)) that is a stateless entity, the territory in which it was created.

(9) For the purposes of this section, reference to a “significant accounting standard difference” is to a difference of more than 1 million euros between the treatment of an amount in the financial accounts of a member of a multinational group and the consolidated financial statements of the ultimate parent that is not eliminated over time.

Underlying profits of permanent establishments

135

(1) The underlying profits of a member of a multinational group that is a permanent establishment are the member’s profits—

(a) if the member has separate financial accounts, as reflected in those accounts, and

(b) if not, as reflected in the underlying profits accounts of the main entity, attributed between the permanent establishment and the main entity in accordance with section 159.

(2) If the member is a permanent establishment falling within paragraph (d) of section 232 (2) (income of permanent establishment exempt from tax in territory of main entity) the member’s underlying profits are determined only by reference to its relevant income and relevant expenses.

(3) For the purposes of subsection (2)—

(a) the relevant income of the member is the income of the member that is exempted from tax in the territory where the main entity is located that is attributable to operations carried out outside the territory the main entity is located in, and

(b) the relevant expenses of the member are such of its expenses as are attributable to those operations and are not deducted for tax purposes in the territory of the main entity.

(4) Profits (as determined in accordance with this Part) of a permanent establishment are not to be taken into account in determining the adjusted profits of the main entity, and vice versa.

(5) But subsection (4)—

(a) does not apply to profits of a permanent establishment that are excluded from its profits as a result of an adjustment under section 159, and

(b) is subject to section 160 (attribution of losses between permanent establishment and main entity).

Underlying profits accounts

136

In this Part, reference to the “underlying profits accounts” of a member of a multinational group is to the statements or accounts (which may in some circumstances be hypothetical) that are the basis of the determination of the member’s underlying profits for the purposes of this Part.

No amounts outside of profit and loss account to be included

137

Except as required by any other provision of this Part, amounts that are recognised outside the profit and loss account in the underlying profits accounts of a member of a multinational group are not to be reflected in the underlying profits of that member.

Adjustments of underlying profits

Profits adjusted to be before tax

138

(1) The underlying profits of a member of a multinational group for an accounting period are to be adjusted by adding back any debit, and excluding any credit, for tax expense amounts reflected in ... those profits.

(2) In this Part “tax expense amount” means an amount of tax expense (including a deferred tax expense) in respect of—

(a) a covered tax (whether or not the income to which the tax relates are excluded from adjusted profits for the purposes of this Part);

(b) multinational top-up tax, or any tax equivalent to multinational top-up tax;

(d) a qualifying undertaxed profits tax (see section 257);

(e) taxes accrued by an insurance company in respect of returns to policyholders to the extent that section 152 (2) applies in relation to those taxes;

(f) a disqualified refundable imputation tax (see section 253).

Profits adjusted to be profits before consolidation adjustments to eliminate intragroup transactions

139

(1) The underlying profits of a member of a multinational group are to be adjusted so that they include income, expenses, gains and losses arising from transactions between that member and other members of that group.

(2) Subsection (1) is subject to—

(a) section 137 (amounts outside profit and loss excluded), and

(b) section 164 (where an election is made under that section to exclude profits from intra-group transactions).

Profits adjusted to be profits before certain purchase accounting adjustments

140

(1) The underlying profits of a member of a multinational group for an accounting period are to be adjusted so that they do not reflect relevant share acquisition adjustments.

(2) “Relevant share acquisition adjustment” means a purchase accounting adjustment to the consolidated financial statements of an ultimate parent of a multinational group arising as a result of an entity becoming a member of the group as a result of the acquisition of ownership interests in the entity by an existing member of the group.

(3) This section does not apply to a relevant share acquisition adjustment resulting from an acquisition of ownership interests before 1 December 2021 if the members of the group do not have sufficient records to identify the adjustment made with reasonable accuracy.

General exclusion of dividends

141

(1) The underlying profits of a member of a multinational group are to be adjusted so as to exclude any excluded dividends received or accrued by that member.

(2) “Excluded dividends” means—

(a) a dividend or other distribution arising as a result of a qualifying interest in a flow-through entity (see section 168), or

(b) any other dividend or other distribution arising as a result of a qualifying interest in an entity, other than a dividend or other distribution falling within subsection (3).

(3) The following fall within this subsection—

(a) a dividend or other distribution arising as a result of a qualifying interest that is a short-term portfolio holding;

(b) a dividend or other distribution arising as a result of a qualifying interest in an investment entity that is subject to an election under section 214 (taxable distribution method election);

(i) its recipient is a member of the same group, and

(ii) payments in respect of the distribution (whether or not the distribution was accounted for as a distribution at the time of payment) are treated as an expense of the member that made it for the purposes of determining the member’s underlying profits, or

(d) any other dividend or other distribution to the extent it reflects debt rather than a qualifying interest.

(4) For the purposes of subsection (2) a qualifying interest in an entity held by a member of a multinational group is a portfolio holding if, on the vesting date of the distribution, the members of that group do not, between them, have qualifying interests that entitle them to 10% or more of the entity’s—

(a) profits,

(b) capital,

(d) voting rights.

(5) A portfolio holding held by a member of a multinational group is a short-term portfolio holding if it was held for less than 1 year before the vesting date of the distribution.

(6) The vesting date of a distribution is the earlier of—

(a) the day on which it is made, and

(b) the day on which the person to whom it arises is entitled to have it made.

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