Legislation – Finance (No. 2) Act 2023
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F1Schedule 16AMultinational top-up tax: safe harbours
Part 1Qualifying domestic top-up tax safe harbour
Chapter 1Qualifying domestic top-up tax safe harbour election
Election for qualifying domestic top-up tax safe harbour
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 F2is 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), F3…
F4(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.
Accredited qualifying domestic top-up tax
2
F5(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 F6, or in accordance with, regulations made by the Treasury.
F7(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).
F8(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.
Disqualifying conditions
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 2Application to non-standard members of a multinational group
Application in the case of joint venture 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)
“(7)
Condition E is that the qualifying domestic top-up tax applying in the territory—
(a)
does not generally impose a charge on F9… 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.
Application in the case of investment entities
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)
“(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.
Application in the case of minority owned members
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.
F10Part 2Untaxed amounts: international expansion of groups
No untaxed amounts for groups in initial phase of international expansion
7
(1)
This paragraph applies to a multinational group for an accounting period if—
(a)
it meets the international expansion condition for that period, and
(b)
the accounting period is the first accounting period in which the group came within the scope of Chapter 9A, or any of the following 4 accounting periods.
(2)
If this paragraph applies to a multinational group for an accounting period—
(a)
no member of the group has an untaxed amount relating to that period, and
(b)
no joint venture group has an untaxed amount in relation to the multinational group relating to that period.
(3)
A multinational group meets the international expansion condition for an accounting period if—
(a)
the group does not have members located in more than 6 territories, and
(b)
the sum of the values of tangible fixed assets of qualifying members of the group, other than members located in the reference territory, for that period does not exceed 50 million euros.
(4)
For the purposes of this paragraph—
(a)
the value of tangible fixed assets of a qualifying member of a multinational group is to be determined in accordance with section 229H, and
(b)
the “reference territory” is the territory for which the sum of the values of tangible fixed assets of qualifying members of the group located in that territory is greatest.
(5)
The first accounting period in which a multinational group comes within the scope of Chapter 9A is the later of—
(a)
the first accounting period for which it meets Condition A in section 129(2) (annual revenue exceeds 750 million euros), and
(b)
the first accounting period beginning on or after the day on which section 229C (allocation of untaxed amount to members) comes into force for any purpose.