Legislation – Finance (No. 2) Act 2023

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Part 4Domestic top-up tax

Chapter 1Introduction

265Introduction to domestic top-up tax

(1)

The purpose of this Part is to make provision for a qualified domestic minimum top-up tax within the meaning of the Pillar Two rules.

(2)

For that purpose, this Part makes provision for a tax payable in respect of qualifying entities (that will be located in the United Kingdom) whose rate of tax (as determined in accordance with this Part) is less than 15%.

(3)

The tax is to be known as “domestic top-up tax”.

(4)

This Part applies (with modifications) many of the provisions of Part 3 (multinational top-up tax) for the purposes of—

(a)

determining liability to domestic top-up tax, and

(b)

administering domestic top-up tax.

(5)

Except where the contrary appears, expressions used in this Part and in Part 3 (multinational top-up tax) have the same meaning in this Part as they have in Part 3.

266Qualifying entities

(1)

An entity F1which is not a member of a joint venture group is qualifying for an accounting period if it is not a DTT excluded entity F2…, it meets condition A for that period and—

(a)

if it is not a member of a group, it meets condition B for that period, or

(b)

if it is a member of a group, it meets condition C for that period.

F3(1A)

A member of a joint venture group is a qualifying entity for an accounting period if—

(a)

the member is not a DTT excluded entity,

(b)

the member meets condition A for that period, and

(c)

the revenue condition is met in relation to the group for that period.

(1B)

For the purposes of subsection (1A) the “revenue condition” is met in relation to a joint venture group for an accounting period if—

(a)

a single entity which directly or indirectly holds at least 50% of the ownership interests in the joint venture parent meets Condition A and Condition B for that period, or

(b)

the members of a group (the “relevant group”) whose ultimate parent directly or indirectly holds at least 50% of the ownership interests in the joint venture parent meet Condition C for that period and—

(i)

all of those members are located in the United Kingdom, or

(ii)

the relevant group is a multinational group (see section 126 in Part 3), and at least one of the members is located in a Pillar Two territory.

(2)

Condition A is met by an entity for an accounting period if it is located in the United Kingdom in that period (see section 239 in Part 3).

(3)

Condition B is met by an entity for an accounting period if the entity has revenue that exceeds the threshold set out in subsection (6) in at least 2 previous accounting periods of the previous 4 accounting periods.

(4)

For the purposes of condition B, the revenue of an entity that is not a member of a group is to be determined by reference to its qualifying financial statements.

(5)

Condition C is met by a member of a group for an accounting period if the members of the group have revenue that exceeds the threshold set out in subsection (6) in at least 2 previous accounting periods of the previous 4 accounting periods.

(6)

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.

(7)

For the purposes of condition C, the revenue of the members of a group for a period is to be determined by reference to the consolidated financial statements of the ultimate parent for that period (see sections 126(2) and 249 in Part 3).

(8)

Sections 130 and 131 in Part 3 (change in composition of multinational groups) apply for the purpose of Condition C as if—

(a)

references to “multinational group” were to “group”,

(b)

in section 130—

(i)

in subsection (1), for “condition A in section 129(2)” there were substituted “condition C in section 266(5)”,

(ii)

in subsection (4), for “section 129(4)” there were substituted “section 266(6)”,

(c)

in section 131(1)—

(i)

for “section 129” there were substituted “section 266”,

(ii)

for “subsection (2)” there were substituted “subsection (5)”,

(iii)

for “condition A” there were substituted “condition C”, and

(iv)

for “section 129(4)” there were substituted “section 266(6), and

(d)

in section 131(2), for “condition A in section 129(2)” there were substituted “condition C in section 266(5)”

(9)

References in this Part to a “group” (other than in the expression “multinational group”) means a consolidated group (see section 126(2) in Part 3).

(10)

For the purposes of this Part “qualifying financial statements” in relation to an entity means—

(a)

financial statements of the entity prepared in accordance with acceptable accounting standards, or

(b)

where no such accounts were prepared, the statements that would have been prepared (whether or not the entity was required to prepare such statements) in accordance with an authorised accounting standard that is either—

(i)

an acceptable accounting standard, or

(ii)

a financial accounting standard whose application is adjusted to prevent material competitive distortions (see section 249(4)).

267DTT excluded entities

(1)

An entity is a DTT excluded entity if—

(a)

it falls within subsection (3) of section 127 in Part 3 (excluded entities),

(b)

it is a member of a multinational group and falls within subsection (4) of that section, or

(c)

it is a member of a group that is not a multinational group, but would fall within that subsection if that group were a multinational group.

(2)

A DTT excluded entity falling within subsection (1) F4or (3B)(b) (as well as not being a qualifying entity) is, for the purposes of the provisions of this Part other than section 266 and this section, to be treated as not being a member of any group.

(3)

A qualifying transformer vehicle that is not a member of a multinational group is also a DTT excluded entity.

F5(3ZA)

A company is a DTT excluded entity if—

(a)

it is a qualifying asset holding company for the purposes of Schedule 2 to FA 2022, and

(b)

is not a member of a multinational group.

F6(3A)

A securitisation company that is not a member of a group for the purposes of domestic top-up tax is a DTT excluded entity (and see section 267A).

F7(3B)

An investment entity is a DTT excluded entity if—

(a)

it is not a member of a group, or

(b)

it is a member of group that is comprised only of members located in the United Kingdom.

(3C)

An investment entity that is a member of a group that is not comprised only of members located in the United Kingdom—

(a)

is not to be regarded as a qualifying entity, but

(b)

top-up amounts of that entity are to be determined under sections 220 to 224 (see also section 272(8)(e) which has the effect of attributing those amounts to standard members of the group that are qualifying entities and are located in the same territory as the investment entity).

(3D)

An investment entity that falls within subsection (3C) is not to be regarded as a member of any group for any purpose other than for the purposes of—

(a)

determining the top-up amounts of that entity under those sections,

(b)

applying Condition C in section 266 in relation to other members of the group (revenue threshold for group), and

(c)

subsections (8)(e) (9), (10) and (11) of section 272.

(4)

In this section

F8 “qualifying transformer vehicle” means—
1. (a)
  a qualifying transformer vehicle within the meaning of the Risk Transformation (Tax) Regulations 2017 (S.I. 2017/1271), or
2. (b)
  a part of a protected cell company that is a qualifying transformer vehicle within the meaning of those Regulations;
F9“securitisation company” has the meaning it has in the Taxation of Securitisation Companies Regulations 2006 (see regulation 4).

F10267ASecuritisation companies in a group treated as not consolidated

(1)

Subsection (2) applies to a securitisation company that is a member of a group.

(2)

The company is only to be regarded as a member of the group for the purposes of applying Condition C in section 266 in relation to other members of the group (revenue threshold for group).

(3)

Otherwise, the company is to be treated as not being a member of any group for the purposes of domestic top-up tax.

268Permanent establishments

Section 232(3) (permanent establishment treated as distinct from entity it is a permanent establishment of) applies for the purposes of this Part as it applies for the purposes of Part 3.

F11268APartnerships

Section 232A (partnerships) applies for the purposes of this Part as it applies for the purposes of Part 3.