Legislation – Finance (No. 2) Act 2023

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Part 3Multinational top-up tax

Chapter 5Covered tax balance

Allocation of covered taxes

179Controlled foreign company tax regimes

(1)

Where—

(a)

a member of a multinational group (“C”) is subject to a controlled foreign company tax regime, and

(b)

C has an ownership interest in another member of the group (“F”) that is a F1CFC entity in relation to C,

any amount of qualifying current tax expense included in C’s underlying profits accounts with respect to tax on C’s share of the profits of F are to be allocated to F (to the extent it has not already been allocated as a result of another provision of this Part).

F2(1A)

Qualifying current tax expense allocated to F is to be regarded as qualifying current tax expense of F for the purposes of applying section 175(2)(a).

(2)

But the amount of qualifying current tax expense in respect of mobile income allocated to F is not to exceed the amount given by taking the following steps—

Step 1

Determine the effective tax rate of the members of the multinational group in the territory of F for the accounting period to which the qualifying current tax expense relates, ignoring that expense.
Step 2

Subtract the result of Step 1 from 15%.
Step 3

Multiply the result of Step 2 by the amount of mobile income to which the qualifying current tax expense relates.

(3)

Subsection (1) does not apply to a controlled foreign company tax regime that is a blended CFC regime in accounting periods commencing on or before 31 December 2025 that end on or before 30 June 2027.

F3(3A)

Where an amount of qualifying current tax expense would have been allocated to F but the amount allocated is limited as a result of subsection (2), the amount not allocated remains with C.

(3B)

But if an amount would, ignoring this subsection, remain with C and that amount relates to income or gains that are not included in the adjusted profits of F, that amount is to be excluded from the covered tax balance of both C and F.

(4)

In this Part—

“controlled foreign company tax regime” means a set of tax rules (other than multinational top-up tax or any tax equivalent to multinational top-up tax) under which an entity with an ownership interest in another entity located in a different territory (“the controlled foreign company”) is subject to current taxation on its share of part or all of the income earned by the controlled foreign company, irrespective of whether that income is distributed currently to it;

F4“CFC entity”, in relation to a member of a multinational group who is subject to a controlled foreign company tax regime, means—

(a)

a controlled foreign company in relation to that member,

(b)

a permanent establishment of such a controlled foreign company, or

(c)

an entity whose profits are treated, for the purposes of the regime, as the profits of such a controlled foreign company;

“blended CFC regime” means a controlled foreign company tax regime—

(a)

under which the income, losses and creditable taxes of all of the controlled foreign companies of the entity with ownership interests in them are aggregated for the purposes of calculating the entity’s tax liability under the regime,

(b)

that does not take into account the income of the entity, or members of a consolidated group of which the entity is a member, that arises in the location of the entity, apart from to the extent the entity may use its losses arising in that location to reduce its liability under the regime, and

(c)

which operates by reference to a rate which reflects a threshold for low taxation.