Legislation – Finance (No. 2) Act 2023

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Part 4Domestic top-up tax

Chapter 3Application of multinational top-up tax provisions

272Determining top-up amounts of entity that is a member of a group

(1)

Subject as follows, Chapters 3 to 6, 8 and 9 of Part 3 apply for the purposes (“domestic purposes”) of determining whether a qualifying entity that is a member of a group has top-up amounts or additional top-up amounts, and the extent of those amounts, as they apply for the purpose of determining the same for the purposes of multinational top-up tax.

(2)

Where the group is not a multinational group, that Part has effect for domestic purposes as if any reference to a multinational group were to a group.

(3)

Part 3 has effect for those purposes as if the following provisions (which provide for reductions of top-up amounts where a qualifying domestic top-up tax is payable) were omitted—

(a)

in section 194, subsections (2) to (7);

(b)

in section 203, subsections (3) to (7);

(c)

in section 206, subsections (4) to (8).

F1(3A)

Part 3 has effect for those purposes as if the following sections were substituted for section 193—

“193Determination of top-up amounts of entity that is a member of a group

(1)

Subsection (2) sets out (for the purposes of Step 1 of section 270(A1)) how to determine in relation to an accounting period—

(a)

whether an entity which is a standard member of a group has a top-up amount, and

(b)

if so, what the amount is.

(2)

Take the following Steps—

Step 1

Determine for the period (in accordance with section 272) the sum of any top-up amounts and additional top-up amounts of standard members of the group (the “total top-up amount”).

Step 2

Determine for each such member—

(a)
the adjusted profits (if any);

(b)
the covered tax balance.

Step 3

For each standard member of the group in relation to which a positive amount of adjusted profits is determined under Step 2, determine the “effective tax rate” by dividing the amount found under Step 2(b) (covered tax balance) by the amount found under Step 2(a) (adjusted profits).

Step 4

For any standard member of the group whose effective tax rate (see Step 3) is less than 15%—

(a)
determine that member’s “top-up tax percentage” by subtracting the member’s effective tax rate from 15%, and

(b)
proceed to Step 5.

Step 5

Calculate for the member an amount (an “allocation key amount”) by multiplying—

(a)
the member’s top-up tax percentage (see Step 4(a)), by

(b)
the member’s adjusted profits.

Step 6

Determine the sum (the “group allocation key amount”) of all the allocation key amounts calculated under Step 5 for members of the group.

Step 7

Determine the “allocation key ratio” for each standard member of the group whose effective tax rate (see Step 3) is less than 15%, by dividing—

(a)
the member’s allocation key amount (see Step 5), by

(b)
the group allocation key amount (see Step 6).

Step 8

Determine each such member’s top-up amount by multiplying—

(a)
the sum of any top-up amounts and additional top-up amounts of standard members of the group for the period (see Step 1), by

(b)
the member’s allocation key ratio (see Step 7).

Step 9

If none of the standard members falls within Step 3, or none of them has an effective tax rate of less than 15%, each standard member has a top-up amount equal to—

(a)
the total top-up amount, divided by

(b)
the number of the standard members.

193ASection 193: supplementary

(1)

Section 193 and subsection (2) of this section apply to joint venture groups and their members as they apply to groups and their members.

(2)

Section 193 has effect in relation to a qualifying entity that is a standard member of a group as if the total top-up amount referred to in that section included any top-up amounts or additional top-up amounts of qualifying investment entities determined under sections 220 to 224.

(3)

See also subsections (9) to (11) of section 272, which—

(a)

define “qualifying investment entity” in relation to a qualifying entity, and

(b)

make further provision about top-up amounts (for the purposes of domestic top-up tax).”

(4)

The following provisions of Part 3 are of no practical application for domestic purposes and accordingly that Part has effect for those purposes as if they were omitted—

(a)

section 173(1)(b) and sections 189 to 192 (eligible distribution tax systems);

(b)

section 225 (attribution of top-up amounts of investment entities).

F2(c)

Chapter 9A (qualifying undertaxed profits tax).

(5)

Where—

(a)

an election is made under Part 3 in relation to a member of a multinational group (whether or not a qualifying entity) for the purposes of multinational top-up tax, and

(b)

if the election had effect for domestic purposes, it would affect the calculation of top-up amounts or additional top-up amounts,

that election has effect for domestic purposes.

(6)

For the purposes of subsection (5), a foreign IIR election is to be treated as an election made under Part 3.

(7)

A “foreign IIR election” means an election—

(a)

made in respect of a group in connection with a tax equivalent to multinational top-up tax in another Pillar Two territory;

(b)

contained in an information return—

(i)

submitted to a qualifying authority in that territory, and

(ii)

in relation to which information in the return about the election has been shared with HMRC.

(8)

For domestic purposes—

(a)

section 134 (underlying profits as determined for statements of ultimate parent) has effect as if, after subsection (3), there were inserted—

“(3A)

The conditions in subsection (3) are not required to be met if—

(a)

the alternative accounting standard is UK GAAP,

(b)

all members of the group are located in the United Kingdom, and

(c)

the filing member of the group has made an election in a self-assessment return that the underlying profits of all members of the group are to be determined on the basis of UK GAAP.

(3B)

Paragraph 1 of Schedule 15 (long term elections) applies to an election under subsection (3A), and has effect for that purpose as if references to an information return or overseas return notification were to a self-assessment return or below-threshold notification.”;

(b)

section 176 (amounts to be reflected in covered tax balance) has effect as if, for subsection (2)(i) (amounts allocated from another member of the group), there were substituted—

“(i)

any amount allocated to the member from another member of the group under section 178(1) (reallocation of tax expense).”;

(c)

section 178 (reallocation of tax expense) has effect as if—

(i)

F3for subsection (1A) there were substituted—

“(1A)

But qualifying tax expense in respect of tax imposed by a territory other than the United Kingdom is not to be allocated to O as a result of the allocation of profits under section 167 (hybrids).”;

(ii)

subsection (2) (restriction on allocation of tax expense in respect of mobile income) were omitted;

(d)

section 179 (controlled foreign companies) has effect as if subsection (2) (restriction on allocation to CFC) were omitted;

F4(da)

in section 182(2)(e), after “credits”, in the first place it occurs, there were inserted “other than qualifying refundable tax credits”;

F5(e)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F6(9)

An investment entity is a qualifying investment entity in relation to a qualifying entity if it is

(a)

a member of the same group as the qualifying entity, and

(b)

located in United Kingdom.

(10)

Subsection (11) applies to qualifying entities that are standard members of a group for an accounting period where—

(a)

the total top-up amount referred to in section 193 for that period is greater than nil as a result of the modification of that section set out in subsection (8)(e), and

(b)

none of those members have made a profit for that period (and accordingly will not, ignoring subsection (11), have top-up amounts).

(11)

Where this subsection applies, each of those members has a top-up amount (for the purposes of domestic top-up tax) equal to the total top-up amount divided by the number of qualifying entities that are standard members of the group.