Legislation – Finance Act 2026
Schedule 8Pillar Two
Deferred tax assets and liabilities: exclusions
20
(1)
Section 185 (inclusion of existing deferred tax assets and liabilities on entry into regime) is amended as follows.
(2)
In subsection (1), for “that is reflected” substitute “that are reflected”
.
(3)
In subsection (6)—
(a)
in the words before paragraph (a) omit “qualifying”;
(b)
“(a)
before the commencement of the first accounting period for which Pillar Two rules apply to the member and as a result of a transaction carried out after 30 November 2021, and”
(4)
“(7A)
Subsection (7D) applies to a deferred tax asset of a member of a multinational group that arises before the commencement of the first accounting period for which Pillar Two rules apply to the member and as a result of the occurrence of either of the following after 30 November 2021—
(a)
the making available of a tax credit, or other tax relief, by virtue of the exercise of a discretion in relation to a member of the group by a national, regional or local government or by a governmental entity;
(b)
the making (or modifying) of an election or of another choice by a member of the group where the effect of the election or choice is to change the tax treatment of an earlier transaction retrospectively.
(7B)
Subsection (7D) also applies to a deferred tax asset or a deferred tax liability of a member of a multinational group that arises—
(a)
after 30 November 2021 and before the commencement of the first accounting period for which Pillar Two rules apply to the member,
(b)
because of a difference between the value (or base cost) of an asset or liability for the purposes of a corporate income tax and its value for accounting purposes, and
(c)
in circumstances where the corporate income tax mentioned in paragraph (b) was introduced on or after 1 December 2021 in a territory that did not previously have a corporate income tax.
(7C)
Subsection (7D) also applies to a deferred tax asset of a member of a multinational group that arises before the commencement of the first accounting period for which Pillar Two rules apply to the member if—
(a)
where the member is located in a territory which did not have a corporate income tax before 1 December 2021 and in which one is introduced on or after that date, the deferred tax asset is attributable to a loss occurring before the fifth accounting period before the accounting period in which that corporate income tax came into force, or
(b)
the deferred tax asset arises in relation to non-economic expenses or losses (within the meaning of the Pillar Two rules) incurred after 30 November 2021.
(7D)
A deferred tax asset or deferred tax liability to which this subsection applies is to be ignored in determining the member’s deferred tax expense.”
(5)
In subsection (8), omit “qualifying”.