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Schedules

Schedule 4Pillar two

Section 19

Part 1Introduction

1

F(No.2)A 2023 is amended in accordance with—

(a)

Part 2 of this Schedule (which contains amendments designed to implement the UTPR within the meaning of the Pillar Two rules), and

(b)

Part 3 of this Schedule (which contains other amendments in relation to multinational top-up tax and amendments in relation to domestic top-up tax).

Part 2Undertaxed profits rule

Multinational top-up tax to include undertaxed profits rule

2 (1)

Section 121 (introduction to multinational top-up tax) is amended as follows.

(2)

In subsection (1), for the words from “IIR” to the end substitute “IIR and UTPR (within the meaning of the Pillar Two rules).”

(3)

In subsection (5), omit paragraph (e).

Expansion of chargeable persons

3 (1)

Section 122 (chargeable persons) is amended as follows.

(2)

In subsection (1), omit “responsible” in both places.

(3)

In subsection (2), omit “responsible” in each place.

(4)

In subsection (3)(a), omit “responsible”.

(5)

In subsection (7), omit “responsible”.

Charge to multinational top-up tax to include UTPR

4 (1)

For section 123 substitute—

“123Charge to multinational top-up tax

(1)

A person chargeable to tax as, or in respect of, a member of a multinational group (“the relevant member”) is charged multinational top-up tax for an accounting period if one or more members of the group have top-up amounts or additional top-up amounts for that period and—

(a)

the relevant member is a responsible member for one or more of those members (see section 128), or

(b)

one or more of those members have untaxed amounts that are allocated to the relevant member (see Chapter 9A).

(2)

The amount charged is the sum of the following—

(a)

where subsection (1)(a) applies—

(i)

top-up amounts attributed to the relevant member in accordance with Chapter 7, and

(ii)

additional top-up amounts attributed to the relevant member in accordance with that Chapter, and

(b)

where subsection (1)(b) applies, the untaxed amounts allocated to the relevant member in accordance with Chapter 9A.

(3)

The amount charged (which in accordance with section 254 will be expressed in the CFS currency) is to be converted to sterling using the average exchange rate for the accounting period (if the CFS currency is not sterling).”

(2)

In section 124 (how to calculate top-up amounts etc)—

(a)

in the heading, for “and attribute them” substitute “etc”, and

(b)

after subsection (8) insert—

“(8A)

Chapter 9A makes provision for—

(a)

determining whether members of the group have untaxed amounts, and

(b)

allocating those untaxed amounts to members of the group located in the United Kingdom, other than members that are investment entities or joint venture group members.”

(3)

In section 254 (use of currency), in subsection (4), for “step 4 in” substitute “subsection (3) of”.

New chapter to deal with UTPR

5

After Chapter 9 insert—

“Chapter 9AUntaxed amounts

Introduction

229AMeaning of potentially undertaxed

(1)

The top-up amount and additional top-up amounts of a member (“M”) of a multinational group for an accounting period are “potentially undertaxed” if—

(a)

M is the ultimate parent or is located in the same territory as the ultimate parent, or

(b)

the ultimate parent is not a responsible member.

(2)

Subsection (1) does not apply if—

(a)

the ultimate parent is not a responsible member,

(b)

none of the ownership interests of the ultimate parent in M are direct ownership interests, and

(c)

every indirect ownership interest the ultimate parent has in M is derived from an ownership interest the ultimate parent has in a responsible member.

(3)

Subsection (1) also does not apply if—

(a)

the ultimate parent is located in a territory in which a DIIR is in force and is a responsible member, and

(b)

M is located in the same territory as the ultimate parent.

(4)

This section and section 229B do not apply to members of a joint venture group (but see section 229I for alternative provision).

229BUntaxed amounts

(1)

A member of a multinational group has an untaxed amount if conditions A and B are met.

(2)

Condition A is that the top-up amount and additional top-up amounts of the member are potentially undertaxed.

(3)

Condition B is that the sum of amounts attributed under Chapter 7 to responsible members in respect of the member’s top-up amount and additional top-up amounts is less than the sum of the member’s top-up amount and additional top-up amounts.

(4)

The untaxed amount is the amount given by subtracting—

(a)

the sum of amounts attributed under Chapter 7 to responsible members in respect of the member’s top-up amount and additional top-up amounts, from

(b)

the sum of the member’s top-up amount and additional top-up amounts.

Allocation of untaxed amounts

229CAllocation of untaxed amount to members

(1)

An untaxed amount of a member of a multinational group is to be allocated to qualifying members of the group located in the United Kingdom by—

(a)

first, determining the amount (“the UK proportion”) of the untaxed amount to be allocated to the group in the United Kingdom in accordance with section 229D, and

(b)

then, allocating an amount of the UK proportion to each qualifying member located in the United Kingdom in accordance with section 229E.

(2)

But no allocation is to be made under subsection (1) if in section 229D(1) the results of both Step 2 and Step 5 are nil.

(3)

For the purposes of this Chapter, a member of a multinational group is qualifying unless it is—

(a)

an investment entity, or

(b)

a member of a joint venture group.

229DAmount allocated to the United Kingdom

(1)

Take the following steps to determine the UK proportion of an untaxed amount of a member of a multinational group—

Step 1

Determine the number of employees of qualifying members of the group located in the United Kingdom for the accounting period to which the untaxed amount relates (“the relevant period”).

Step 2

Determine the total number of employees in the relevant period of qualifying members of the group located in territories (including the United Kingdom) in which a qualifying undertaxed profits tax applies to the untaxed amount.

Step 3

Divide the result of Step 1 by the result of Step 2.

Step 4

Determine the value of tangible fixed assets of the qualifying members of the group located in the United Kingdom for the relevant period.

Step 5

Determine the value of tangible fixed assets of the qualifying members of the group located in territories (including the United Kingdom) in which a qualifying undertaxed profits tax applies to the untaxed amount.

Step 6

Divide the result of Step 4 by the result of Step 5.

Step 7

Add together the results of Step 3 and Step 6 and divide that sum by 2.

Step 8

The UK proportion of the untaxed amount is—

(a)
if the nil asset value condition is met, the untaxed amount multiplied by the result of Step 3;

(b)
if the nil employee condition is met, the untaxed amount multiplied by the result of Step 6;

(c)
in any other case, the untaxed amount multiplied by the result of Step 7.

(2)

For the purposes of subsection (1)—

(a)

the “nil asset value condition” is met if—

(i)

the result of Step 5 is nil, but

(ii)

the result of Step 2 is not nil;

(b)

the “nil employee condition” is met if—

(i)

the result of Step 2 is nil, but

(ii)

the result of Step 5 is not nil.

(3)

A qualifying undertaxed profits tax applies in a territory in relation to an untaxed amount if—

(a)

a qualifying undertaxed profits tax is in force in that territory for the relevant period, and

(b)

the provisions of that tax result in a proportion of the untaxed amount (however described for the purposes of that tax) that is greater than nil being allocated to the territory.

(4)

See sections 229G and 229H for how to determine the number of employees and the value of tangible fixed assets of a qualifying member of a multinational group.

229EAllocation to qualifying members

(1)

Take the following steps to determine how much of an untaxed amount is to be allocated to each qualifying member located in the United Kingdom—

Step 1

Determine the number of employees of the member in the accounting period (“the relevant period”) to which the untaxed amount relates.

Step 2

Determine the total number of employees for the relevant period of qualifying members of the group located in the United Kingdom.

Step 3

Divide the result of Step 1 by the result of Step 2.

Step 4

Determine the value of tangible fixed assets of the member for the relevant period.

Step 5

Determine the value of tangible fixed assets for the relevant period of the qualifying members of the group located in the United Kingdom.

Step 6

Divide the result of Step 4 by the result of Step 5.

Step 7

Add together the results of Step 3 and Step 6 and divide that sum by 2.

Step 8

The untaxed amount to be allocated to the member is—

(a)
if the nil asset value condition is met, the UK proportion multiplied by the result of Step 3;

(b)
if the nil employee condition is met, the UK proportion multiplied by the result of Step 6;

(c)
in any other case, the UK proportion multiplied by the result of Step 7.

(2)

For the purposes of subsection (1)—

(a)

the “nil asset value condition” is met if—

(i)

the result of Step 5 is nil, but

(ii)

the result of Step 2 is not nil;

(b)

the “nil employee condition” is met if—

(i)

the result of Step 2 is nil, but

(ii)

the result of Step 5 is not nil.

(3)

This section is subject to section 229F.

229FElection to make one member of a group liable for untaxed amounts

(1)

The filing member of the group may elect for an accounting period that—

(a)

section 229E does not apply, and

(b)

instead, a member of the group specified in the election is to be allocated the whole of the UK proportion of each untaxed amount that would be otherwise be allocated between the qualifying members of the group located in the United Kingdom.

(2)

A member of the group may only be specified in the election if—

(a)

the member is located in the United Kingdom, and

(b)

the member has consented to the election.

(3)

Paragraph 2 of Schedule 15 (annual elections) applies to an election under this section, 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.

How to determine number of employees and tangible fixed assets values

229GNumber of employees

(1)

For the purposes of this Chapter, the number of employees of a qualifying member of a multinational group in an accounting period is the full-time equivalent employee number for that member for that period.

(2)

To determine the full-time equivalent employee number for a member of a multinational group for an accounting period take the following steps—

Step 1

Determine the number of full-time employees of that member that were full-time employees for the whole of that period.

Step 2

Determine, for each employee of that member for that period who is not a full-time employee for the whole of that period (whether they were part-time employees or were not employed for the whole of the period), such fraction as is just and reasonable.

Step 3

Add together the number determined under Step 1 and the fractions determined under Step 2.

If the member was a member of the group throughout the whole of the period, the result of this Step is the full-time equivalent employee number.

Step 4

Where the member was not a member of the group for the whole period, make such adjustments to the result of Step 3 as is just and reasonable to arrive at a full-time equivalent employee number that reflects the number of employees of the member in the period for which it was a member of the group.

For the purpose of this Step, ignore section 208(2) (members joining or leaving group in an accounting period treated as members for the whole of the period).

(3)

For the purposes of this section “employee”, in relation to a member of a multinational group, means a person whose employment costs are met by that member (whether or not the person’s activities are carried on in the territory of the member) as recorded in appropriate financial statements of the member and who—

(a)

is regarded as an employee under the law of the territory in which the member is located, or

(b)

participates in the ordinary operating activities of the member of the group (including on a part-time basis).

(4)

For the purposes of subsection (3) financial statements are “appropriate” only if the basis on which they are prepared is consistent for all members of the group (wherever located).

(5)

For the purposes of section 229D (but not for the purposes of section 229E), where a member of a multinational group is a flow-through entity, employees of the entity—

(a)

are to be treated as employees of members of the group that are not flow-through entities that are located in the territory in which the flow-through entity was created, or

(b)

where there are no such members in that territory, are ignored for the purposes of this Chapter.

(6)

Subsection (5) does not apply to employees of a flow-through entity that are regarded for the purposes of this section as employees of a permanent establishment of the entity.

(7)

Where a permanent establishment does not prepare separate financial accounts, the reference in subsection (3) to employment costs recorded in financial statements is to the employment costs that would have been so recorded had such statements been prepared (and those costs are to be excluded from the financial statements of the main entity for the purposes of applying this section).

229HValue of tangible fixed assets

(1)

To determine the value of tangible fixed assets of a qualifying member of a multinational group for an accounting period—

(a)

add together—

(i)

the sum of the values of each tangible fixed asset held by the member at the start of the period, as those values are recorded in the member’s financial statements, and

(ii)

the sum of the values of each tangible fixed asset held by the member at the end of the period, as those values are recorded in the member’s financial statements, and

(b)

divide the result of paragraph (a) by 2.

(2)

For the purposes of subsection (1) financial statements are “appropriate” only if the basis on which they are prepared is consistent for all members of the group (wherever located).

(3)

In each case the value of a tangible fixed asset is to include accumulated depreciation, depletion or impairment.

(4)

If the member is not a member of the group at the start of the period, or at the end of the period, the sum of the values of its tangible fixed assets at that time is to be treated as nil.

(5)

For the purpose of subsection (4), ignore section 208(2) (members joining or leaving group in an accounting period treated as members for the whole of the period).

(6)

Where a permanent establishment does not prepare separate financial accounts, the values to be used are those that would have been recorded in those accounts had they been prepared (and those values are to be excluded from the financial statements of the main entity for the purposes of applying this section).

(7)

For the purposes of section 229D (but not for the purposes of section 229E), tangible fixed assets held by a member of the group that is a flow-through entity—

(a)

are to be treated as held by members of the group that are not flow-through entities that are located in the territory in which the flow-through entity was created, or

(b)

where there are no such members in that territory, are to be ignored for the purposes of this Chapter.

(8)

Subsection (7) does not apply to assets of a flow-through entity that are held by a permanent establishment of the entity.

(9)

For the purposes of this Chapter “tangible fixed assets” means all tangible assets wherever located, other than cash or cash equivalents or financial assets.

Joint ventures

229IJoint ventures

(1)

This section applies where—

(a)

the ultimate parent of a multinational group is not subject to Pillar Two IIR tax for an accounting period,

(b)

the group includes a joint venture group, and

(c)

the members of the joint venture group are undertaxed in relation to the multinational group for that period.

(2)

The members of a joint venture group are undertaxed in relation to a multinational group if—

(a)

the sum of amounts attributed to responsible members of the multinational group under Chapter 7 in respect of members of the joint venture group’s top-up amount and additional top-up amounts, is less than

(b)

the sum of such amounts in respect of the joint venture group that would be attributed under that Chapter to the ultimate parent of the multinational group if it were subject to Pillar Two IIR tax.

(3)

The amount given by subtracting the amounts mentioned in paragraph (a) of subsection (2) from the amounts mentioned in paragraph (b) of that subsection is an untaxed amount of the joint venture group in relation to the multinational group.

(4)

Sections 229C to 229F (allocation of untaxed amounts) apply for the purposes of allocating an untaxed amount of a joint venture group in relation to a multinational group to qualifying members of that multinational group as they apply to the allocation of an untaxed amount of a member of the multinational group to those members.

References to responsible members

229JReferences to responsible members

(1)

For the purpose of determining untaxed amounts of a member of a multinational group who is located in a territory in which a DIIR is in force, references in this Chapter to a responsible member are to be interpreted as if section 128 (responsible members) had effect with the following modifications—

(a)

in subsection (2) omit “that are not located in the territory the ultimate parent is located in”;

(b)

in subsection (3)(c), at the beginning insert “the intermediate parent,”;

(c)

in subsection (4) omit “that are not located in the territory it is located in”;

(d)

in subsection (5)(b), at the beginning insert “it or”;

(e)

in subsection (6) omit “that are not located in the same territory it is located in”;

but this is subject to subsection (2).

(2)

For the purpose of determining whether the top-up amount and additional top-up amounts of a member (“M”) of a multinational group for an accounting period are “potentially undertaxed”, a member of the group which—

(a)

is located in the same territory as M, and

(b)

would apart from this subsection be a responsible member,

is to be regarded for all purposes of this Chapter as not being a responsible member unless a DIIR is in force for the accounting period in that territory.

(3)

In this section “DIIR” means a tax which—

(a)

implements, in a Pillar Two territory, rules relating to top-up tax under the IIR (within the meaning of the Pillar Two rules), and

(b)

is designed so that tax charged under it is not limited to tax in respect of members who are located outside that territory.”

Transition into regime

6 (1)

Schedule 16 (transitional provision) is amended as follows.

(2)

In Chapter 1 of Part 2, in the Chapter heading, for “Transitional” substitute “General transitional”.

(3)

In Chapter 2 of Part 2, in the Chapter heading, after “Application” insert “of Chapter 1”.

(4)

After Part 2 insert—

“Part 2AUTPR transitional safe harbour election

Election

12A

(1)

The filing member of a multinational group may elect for an accounting period that in the territory of the ultimate parent—

(a)

no member of the group located in the territory has an untaxed amount relating to that period, and

(b)

no joint venture group whose joint venture parent is located in the territory has an untaxed amount in relation to the multinational group relating to that period.

(2)

An election may only be made for an accounting period if—

(a)

the minimum corporate tax rate for the territory of the ultimate parent is equal to, or in excess of, 20%, and

(b)

the accounting period—

(i)

commenced on or before 31 December 2025 and ends before 31 December 2026, and

(ii)

is not longer than 12 months.

(3)

The “minimum corporate tax rate” for a territory means—

(a)

in the case of a territory in which corporate income tax may be imposed by subdivisions of that territory as well as by a national authority, the sum of—

(i)

the nominal national rate that generally applies, and

(ii)

the lowest nominal rate that generally applies that is imposed by a subdivision of that territory (and where one or more subdivisions do not impose corporate income tax, that rate will be zero), or

(b)

otherwise, the nominal rate that generally applies.”

(5)

In Schedule 16A at the end insert—

“Part 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.”

Consequential amendments: IIR and qualifying undertaxed profits tax

7 (1)

In section 128 (responsible members)—

(a)

in subsection (7)(b)(i), after “equivalent to” insert “the IIR provisions of”, and

(b)

after subsection (7) insert—

“(8)

In this section the “IIR provisions of multinational top-up tax” means the provisions of this Part relating to the charging of top-up amounts and additional top-up amounts (but not untaxed amounts).”

(2)

In section 257 (meaning of qualifying undertaxed profits tax), in subsection (1), after “it is” insert “—

“(a)

multinational top-up tax (see, in particular, Chapter 9A), or

(b)”.

Other consequential amendments etc

8

In section 241 (Pillar Two territories), in subsection (2), for “equivalent to this Part—” substitute “which implement the provisions of the Pillar Two rules relating to top-up tax under the IIR (within the meaning of those rules)—”.

9 (1)

In Schedule 17 (index of defined expressions), in the table, at the appropriate place insert—

““qualifying member (in Chapter 9A of Part 3)”.”

(2)

In Schedule 15 (elections), in paragraph 2(1), after paragraph (h) insert—

“(ha)

section 229F;”.

(3)

In section 272 (domestic top-up tax for members of groups), in subsection (4), after paragraph (b) insert—

“(c)

Chapter 9A (qualifying undertaxed profits tax).”

(4)

In section 273 (domestic top-up tax for single entities), in subsection (4), after paragraph (z) insert—

“z1

Chapter 9A (qualifying undertaxed profits tax).”

Commencement

10

The amendments made by this Part of this Schedule have effect in relation to accounting periods commencing on or after 31 December 2024.

Part 3Others

Permanent establishments as excluded entities

11

In section 127 (excluded entities), in each of subsections (5), (6) and (7), in paragraph (a), for “it” substitute “the entity or, in the case of a permanent establishment, the main entity”.

Use of substituted values

12 (1)

After section 137 insert—

“137AUse of substituted values

(1)

Where any provision of this Part requires the substitution of a value recorded in the underlying profits accounts of a member of a multinational group for an accounting period, the substituted value—

(a)

is to be used for all purposes of this Part instead of the value recorded in the accounts (for example, where the carrying value of an asset has been substituted and the value of that asset is relevant to the member’s deferred tax expense, that substituted value is to be used in connection with determining that expense), and

(b)

is to be updated (for example, in making adjustments for depreciation for subsequent accounting periods),

in each case, in accordance with the accounting standard used in determining the underlying profits of the member.

(2)

But where the value in question is the value of an asset, no adjustments for impairment are to be made to it.

(3)

Where the impaired value of an asset recorded in the underlying profits accounts for any accounting period is less than the substituted value of the asset for that period, use the value from the underlying profits accounts instead for that period and all subsequent periods (and subsection (2) does not apply in relation to that value).”

(2)

In section 197 (eligible tangible asset amount), in subsection (3)—

(a)

after “means” insert “values”, and

(b)

after “parent” insert “(and not values as substituted as a result of any other provision of this Part)”.

Flow-through entities

13 (1)

Section 168 (underlying profits of transparent and reverse hybrid entities) is amended as follows.

(2)

In the heading omit “and reverse hybrid”.

(3)

After subsection (2) insert—

“(2A)

Subject to subsection (2C), a member of the group is a “reference entity” in relation to M if that member—

(a)

is a non-FTE entity, and

(b)

holds an ownership interest in M which is not held through a non-FTE entity.

(2B)

In subsection (2A) “non-FTE entity” means an entity that is not a flow-through entity.

(2C)

If no member of the group is a reference entity in relation to M by virtue of subsection (2A), the ultimate parent of the group is a “reference entity” in relation to M.”

(4)

In subsection (3) for the words from “each” to the end substitute “any member of the group (“R”)—

“(a)

which is a reference entity in relation to M, and

(b)

in relation to which condition A or B is met.”

(5)

In subsection (4)—

(a)

in each place, for “O” substitute “R”;

(b)

for “proportional” substitute “percentage”;

(c)

omit “(subject to subsection (7))”.

(6)

For subsections (5) and (6) substitute—

“(5)

Condition A is met if—

(a)

R’s ownership interest in M is direct,

(b)

R’s ownership interest in M is a flow-through ownership interest, and

(c)

M is regarded as tax transparent in the territory in which R is located.

(6)

Condition B is met if—

(a)

R’s ownership interest in M is indirect,

(b)

R’s ownership interest in M is a flow-through ownership interest,

(c)

M and each entity through which the ownership interest is held are regarded as tax transparent in the territory in which R is located, and

(d)

no entity through which R holds the ownership interest is a reference entity in relation to M.”

(7)

Omit subsection (7).

(8)

For subsection (9) substitute—

“(9)

Where every ownership interest in M held by a member of the group is a flow-through ownership interest, and an individual or entity (“the investor”) that is not a member of the group has an ownership interest in M which is held—

(a)

directly, or

(b)

through a direct ownership interest in an entity in which a member of the group which is a reference entity in relation to M has an ownership interest,

a proportion of M’s underlying profits, equal to the percentage ownership interest the investor has in M, is to be excluded from the adjusted profits of M.

(9A)

Where M is the main entity in relation to a permanent establishment falling within paragraph (a), (b) or (c) of section 232(2), any reduction of M’s underlying profits by virtue of subsection (9) is to be applied before any attribution of M’s underlying profits to a permanent establishment in accordance with section 159.”

(9)

In subsection (10) omit “or an individual”.

(10)

After subsection (10) insert—

“(10A)

For the purposes of subsections (5), (6) and (9), an ownership interest in M held by a member of the group is a flow-through ownership interest if (and so far as)—

(a)

M is regarded, otherwise than by virtue of section 169(2), as tax transparent in the territory in which M was created,

(b)

the interest is held directly and M is treated by virtue of section 169(2) as being regarded as tax transparent to the extent of the interest, or

(c)

the interest is derived from a direct ownership interest in M to which paragraph (b) applies.”

(11)

Omit subsections (11) and (12).

14

In section 169 (certain non tax resident entities to be treated as flow-through entities), in subsection (2)—

(a)

in the words before paragraph (a), after “created” insert “in”;

(b)

in paragraph (a)—

(i)

after “is” insert “regarded as”;

(ii)

for “its owners” substitute “holders of direct ownership interests in the member”.

15

In section 170 (adjustments for ultimate parent that is a flow-through entity), in subsection (2A) omit “and reverse hybrid”.

16 (1)

Section 178 (reallocation of tax expense) is amended as follows.

(2)

In subsection (1), for “hybrid, transparent and reverse hybrid” substitute “hybrid and transparent”.

(3)

After subsection (1B) insert—

“(1C)

Subsection (1D) has effect where—

(a)

a member of a multinational group (“M”) is a flow-through entity, and

(b)

any of the following are not regarded as tax transparent in the territory in which a member of the group (“R”), which is a reference entity in relation to M (within the meaning of section 168(2A)), is located—

(i)

M;

(ii)

any member of the group through which R’s ownership interest in M is held.

(1D)

If—

(a)

R, or any member of the group (“X”) which has an ownership interest in R, has an amount of qualifying current tax expense,

(b)

that amount is in respect of profits not included in R’s, or as the case may be X’s, underlying profits, and

(c)

had those profits had been included in R’s, or as the case may be X’s, underlying profits a corresponding amount of profits would have been allocated to M under section 167 (ignoring for this purpose subsection (1)(a) of that section) or 168,

that qualifying current tax expense is to be allocated to M (and is to be regarded as qualifying current tax expense of M for the purposes of section 175(2)(a)).”

(4)

In subsection (2), after “(1A))” insert “or to M (under subsection (1D))”.

17

In section 240 (location of flow-through entities and permanent establishments), in subsection (1)—

(a)

before “would” insert “is the ultimate parent of a multinational group, or”;

(b)

for “it is located in that territory” substitute “the entity is treated as located in the territory in which it is created”.

Tax equity partnerships

18

In section 174 (amount of covered tax balance), in subsection (1), in Step 4, for “covered tax balance expense” substitute “qualifying current tax expense”.

19

In sections 175 and 176, in the headings, for “covered tax balance” substitute “qualifying current tax expense”.

20 (1)

Section 176D (tax credits etc allocated under tax equity partnerships) is amended as follows.

(2)

In subsection (1), for “covered tax balance” substitute “qualifying current tax expense”.

(3)

For subsection (2) substitute—

“(2)

“Flow-through tax benefits” means—

(a)

tax credits, other than qualifying refundable tax credits and marketable transferable tax credits, and

(b)

the value of amounts of tax deductible losses,

that are made available to be used by an investor in a tax equity partnership arrangement under that arrangement (whether or not those credits or losses are used by the investor).”

(4)

In subsection (3)(b)—

(a)

for “176D” substitute “176E”;

(b)

at the end insert “and the arrangement”.

(5)

In subsection (7), for “covered tax balance” substitute “qualifying current tax expense”.

(6)

For subsection (11) substitute—

“(11)

An election under subsection (3)(b)—

(a)

must specify the first accounting period for which it is to have effect, which must be the first relevant period,

(b)

must be made no later than the date by which the information return or overseas return notification in respect of the first relevant period is due,

(c)

must be included in an information return submitted to HMRC or a qualifying authority in respect of the first relevant period,

(d)

has effect for the first relevant period and each subsequent accounting period, and

(e)

cannot be revoked.

(12)

In subsection (11), “the first relevant period” means the later of—

(a)

the first accounting period in which the member is an investor in the tax equity partnership arrangement, and

(b)

the first accounting period for which the Pillar Two rules apply to the member.”

(7)

Where a person became an investor in a tax equity partnership arrangement in an accounting period that began before 31 December 2024, section 176D(11) of F(No.2)A 2023 (as inserted by sub-paragraph (6)) has effect in relation to the arrangement as if “the first relevant period” were the first accounting period beginning on or after that date.

(8)

In sub-paragraph (7), “investor in a tax equity partnership arrangement” has the same meaning as in section 176D of F(No.2)A 2023.

21 (1)

Section 176E (flow-through tax benefits: proportional amortisation method) is amended as follows.

(2)

In subsection (1), in Step 2—

(a)

for “flow-through through tax benefits” substitute “flow-through tax benefits”;

(b)

after “expected” insert “(as at the end of the accounting period)”.

(3)

Also in subsection (1), in Step 7, for “flow-through benefits” substitute “flow-through tax benefits”.

(4)

In subsection (2), for “covered tax balance” substitute “qualifying current tax expense”.

(5)

At the end insert—

“(3)

Subsections (4) to (6) apply in relation to an investor, an arrangement and an accounting period if flow-through tax benefits were provided to the investor under the arrangement in at least one earlier accounting period.

(4)

Where the result of Step 3 in subsection (1) would (but for this subsection) be greater than N, this section has effect as if the result of Step 3 were N.

(5)

To find N—

(a)

identify the amount that was the result of Step 3 in subsection (1) in each earlier accounting period in which flow-through tax benefits were provided to the investor under the arrangement,

(b)

add together all the amounts identified under paragraph (a), and

(c)

subtract the result of paragraph (b) from the result of Step 1 in subsection (1).

The result is N, unless the result is below nil, in which case N is nil.

(6)

A reference in subsection (5)(a) to the result of Step 3 in subsection (1) in an earlier accounting period, where subsection (4) had effect in relation to the earlier period, is to the result of that Step as modified under subsection (4).”

22 (1)

Section 176F (flow-through tax benefits: subtraction method) is amended as follows.

(2)

In Step 2, in paragraph (a), for the words from “other than” to the end substitute “other than tax credits—

(i)
that were made available in the accounting period, and

(ii)
that are not qualifying refundable tax credits or marketable transferable tax credits;”.

(3)

In Step 3, for “under arrangement” substitute “under the arrangement”.

23

After section 176F insert—

“176GClawback of earlier qualifying flow-through tax benefits

(1)

This section applies to an investor in a tax equity partnership arrangement if—

(a)

qualifying flow-through tax benefits are excluded under section 176D(1) from the investor’s covered tax balance for an accounting period, and

(b)

the investor has an excess return from the arrangement in a later accounting period (“the later period”).

(2)

For the purpose of determining the investor’s covered tax balance for the later period, the investor’s qualifying current tax expense for that period is to be adjusted (after the steps in section 174(1) have been taken) by subtracting the clawback amount.

(3)

“The clawback amount” is determined as follows—

Step 1

Determine the total amount of the qualifying flow-through tax benefits provided to the investor under the arrangement in accounting periods before the later period.

Step 2

Subtract from the result of Step 1 the total of any amounts subtracted under subsection (2) from the investor’s qualifying current tax expense for accounting periods before the later period.

Step 3

Compare the result of Step 2 with the amount of the investor’s excess return from the arrangement in the later period.

Whichever is less is the clawback amount.

(4)

For the purposes of this section, an investor has an “excess return” from an arrangement in an accounting period—

(a)

where section 176E applies, if the result of Step 6 in section 176E(1) exceeds the amount of the flow-through tax benefits provided under the arrangement in the accounting period, in which case the amount of the excess return is the amount of the excess;

(b)

where section 176F applies and the investor did not have an excess return from the arrangement in an earlier accounting period, if the result of Step 2 in that section is less than nil, in which case the amount of the excess return is the amount by which it is less than nil;

(c)

where section 176F applies and the investor had an excess return from the arrangement in an earlier accounting period, if the result of Step 2 in that section is less than it was in the last accounting period in which the investor had an excess return from the arrangement, in which case the amount of the excess return is the amount of the difference.”

24

In Schedule 15 (elections), in paragraph 2(1) (annual elections), omit paragraph (za).

Blended CFC regimes

25 (1)

Section 180 (blended CFC regimes) is amended as follows.

(2)

In subsection (8)—

(a)

in paragraph (a), for “the effective tax rate of” substitute “a single effective tax rate of all”;

(b)

after paragraph (a) insert—

“(aa)

where—

(i)

the CFC entity is a member of the multinational group,

(ii)

different effective tax rates are calculated for the period for different subsets of (one or more) members of the multinational group located in the territory where the CFC entity is located (“local blending subsets”), and

(iii)

the CFC entity is a member of a local blending subset,

the effective tax rate of the local blending subset of which the CFC entity is a member, calculated on the assumptions set out in paragraph (a)(i) and (ii) (“the relevant assumptions”);

(ab)

where—

(i)

the CFC entity is not a member of the multinational group, or is a member of the multinational group but not a member of any local blending subset, and

(ii)

different effective tax rates are calculated for the period for different local blending subsets,

the effective tax rate, calculated on the relevant assumptions, of the local blending subset whose members have collectively the highest attributable income of C in relation to the CFC entity (as mentioned in subsection (5)(a));”;

(c)

in paragraph (b)—

(i)

for “where it is not located in such a territory,” substitute “where no applicable effective tax rate can be determined under paragraphs (a) to (ab)”, and

(ii)

at the end insert—

“But this is subject to section 180A.”

(3)

After section 180 insert—

“180ASection 180: further provision

(1)

Where the filing member of the multinational group mentioned in section 180(8)(a) has made a transitional safe harbour election under paragraph 3 of Schedule 16 for the relevant period in respect of the territory mentioned in section 180(8)(a), for the purposes of that section the effective tax rate of the members of the group in respect of which the election applies is to be taken to be the simplified effective tax rate of the standard members of the multinational group (as defined in paragraph 8 of Schedule 16)).

(2)

Where the filing member of the multinational group mentioned in section 180(8)(a) has made a transitional safe harbour election under paragraph 10 of Schedule 16 (application in the case of joint venture group) for the relevant period in respect of the territory mentioned in section 180(8)(a), for the purposes of that section the effective tax rate of the members of the group in respect of which the election applies is to be taken to be the simplified effective tax rate of the standard members of that multinational group (as defined in paragraph 8 of Schedule 16).

(3)

Subsection (4) has effect where the filing member of a particular multinational group mentioned in section 180(8)(a) has made one or more separate elections under any of paragraphs 1, 4, 5 and 6 of Schedule 16A for the relevant period in respect of the territory mentioned in section 180(8)(a).

(4)

For the purposes of section 180, the effective tax rate of any member or set of members to which a particular election mentioned in subsection (4) relates is to be the rate (expressed as a percentage) given by dividing—

(a)

the aggregate tax expense of that member or set of members used to determine the effective tax rate for the purposes of the qualifying domestic top-up tax applying in the territory for the accounting period, together with any amounts of qualifying domestic top-up tax paid of that member or set of members, by

(b)

the income of that member or set of members determined for the purposes of the qualifying domestic top-up tax.

(5)

In this section “relevant period” is to be interpreted in accordance with section 180(2)(a).”

No allocation of deferred tax assets and liabilities under blended CFC regimes

26

In section 180 (blended CFC regimes), in subsection (3), in the words before paragraph (a), for “tax charged to C under” substitute “C’s current tax expense so far as relating to”.

Cross-border allocation of current tax under cross-crediting regimes

27

After section 181 insert—

“181ACross-border allocation of current tax under cross-crediting regime

(1)

Qualifying current tax expense is to be allocated between standard members of a multinational group in a territory in which a cross-crediting regime applies and standard members of the group in another territory in accordance with the cross-crediting regime methodology.

(2)

A cross-crediting regime applies in a territory if, under the law of that territory, taxes paid with respect to one source of income arising in another territory give rise to foreign tax credits which can be used against another source of income arising in a further territory.

(3)

The “cross-crediting regime methodology” means—

(a)

provisions of regulations made under section 262(1)(a) (power to make further provision about the application of provisions of this Part etc) identified in the regulations as the cross-crediting regime methodology, or

(b)

where no cross-crediting regime methodology is identified in any such regulations, the methodology described in the cross-crediting guidance.

(4)

The “cross-crediting guidance” means Chapter 3.1 of Tax Challenges Arising from the Digitalisation of the Economy – Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two), June 2024 published by the OECD on 17 June 2024.

(5)

Where subsection (3)(b) applies, the cross-crediting guidance has effect as cross-crediting regime methodology with all necessary modifications for that purpose (for example, reference to a Five-Year Election is to be read as an election to which paragraph 1 of Schedule 15 (long term elections) applies).

(6)

This Chapter is to have effect with such modifications as are necessary to give effect to the cross-crediting regime methodology.”

Cross-border allocation of deferred tax

28

After section 181A (as inserted by paragraph 27) insert—

“Cross-border allocation of deferred tax expense

181BCross-border allocation of deferred tax assets and liabilities

(1)

Deferred tax assets and liabilities are to be allocated between standard members of a multinational group in one territory and standard members of the group in another territory in accordance with the deferred taxes methodology.

(2)

The “deferred taxes methodology” means—

(a)

provisions of regulations made under section 262(1)(a) (power to make further provision about the application of provisions of this Part etc) identified in the regulations as the deferred taxes methodology, or

(b)

where no deferred taxes methodology is identified in any such regulations, the methodology described in the cross-border deferred taxes guidance.

(3)

The “cross-border deferred taxes guidance” means Chapter 4.2 of Tax Challenges Arising from the Digitalisation of the Economy – Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two), June 2024 published by the OECD on 17 June 2024.

(4)

Where subsection (2)(b) applies, the cross-border deferred taxes guidance has effect as deferred taxes methodology with all necessary modifications for that purpose (for example, reference to a Five-Year Election is to be read as an election to which paragraph 1 of Schedule 15 (long term elections) applies).

(5)

This Chapter is to have effect with such modifications as are necessary to give effect to the deferred taxes methodology.”

Extension of qualifying foreign tax credits

29

In section 183 (qualifying foreign tax credits (substitute loss carry forward assets))—

(a)

in subsection (5)—

(i)

the words from “income”, in the second place it occurs, to the end become paragraph (a), and

(ii)

after that paragraph insert “, and

(b)

other qualifying income.”

(b)

after that subsection insert—

“(6)

For the purposes of subsection (5) “other qualifying income means”—

(a)

income identified as such for the purposes of this section in regulations made under section 262(1)(a), or

(b)

where no income is identified as other qualifying income in any such regulations, such income as is necessary to give effect to the substitute loss carry-forward guidance.

(7)

The “substitute loss carry-forward guidance” means Chapter 4.1 of Tax Challenges Arising from the Digitalisation of the Economy – Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two), June 2024 published by the OECD on 17 June 2024.”

Deferred tax recapture

30

In section 184 (recaptured deferred tax liabilities) after subsection (4) insert—

“(5)

This section is to be applied in accordance with, and is subject to, the DTL recapture methodology.

(6)

The DTL recapture methodology means provisions about the treatment of deferred tax liabilities—

(a)

set out in regulations made under section 262(1)(a) and identified in those regulations as the DTL recapture methodology, or

(b)

where no such provisions are identified in any such regulations, set out in the DTL recapture guidance.

(7)

The “DTL recapture guidance” means the guidance in Chapter 1 of Tax Challenges Arising from the Digitalisation of the Economy – Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two), June 2024 published by the OECD on 17 June 2024.

(8)

Where subsection (6)(b) applies, the DTL recapture guidance has effect as DTL recapture methodology with all necessary modifications for that purpose (for example, reference to a Five-Year Election is to be read as an election to which paragraph 1 of Schedule 15 (long term elections) applies).

(9)

This Chapter is to have effect with such modifications as are necessary to give effect to the DTL recapture methodology.”

Existing deferred tax assets and liabilities arising under blended CFC regimes

31

In section 185 (inclusion of existing deferred tax assets and liabilities on entry into regime), after subsection (7) insert—

“(8)

Subsection (9) applies to a deferred tax asset or deferred tax liability of a member of a qualifying multinational group that arises under a blended CFC regime.

(9)

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.”

Substance based income exclusion: permanent establishments and flow-through entities

32

In section 195 (substance based income exclusion), for subsection (8) substitute—

“(8)

Section 198 supplements the rules in sections 196 and 197 in relation to a member that is a permanent establishment.

(9)

Section 198ZA supplements the rules in sections 196 and 197 in relation to a member that is a flow-through entity.”

33

For section 198 (eligible payroll costs and eligible tangible asset amount: permanent establishments and flow-through entities) substitute—

“198Eligible payroll costs and eligible tangible asset amount: permanent establishments

(1)

Sections 196 and 197 apply in relation to permanent establishments with the following modifications.

(2)

In determining under section 196 the eligible payroll costs of a permanent establishment within section 232(2)(a) to (c), the only amounts to be taken into account are amounts that would be taken into account in determining the adjusted profits of the establishment.

(3)

In determining under section 197 the eligible tangible asset amount of a permanent establishment within section 232(2)(a) to (c), the only assets to be taken into account are assets used in the business of the establishment.

(4)

Both the eligible payroll costs and the eligible tangible asset amount of a permanent establishment within section 232(2)(d) are nil.

(5)

If but for this subsection—

(a)

an amount would be taken into account under section 196 in respect of both a permanent establishment and the main entity, or

(b)

an asset would be taken into account under section 197 in respect of both a permanent establishment and the main entity,

the amount or asset is only to be taken into account in respect of the permanent establishment.

198ZAEligible payroll costs: flow-through entities

(1)

A member of a multinational group that is a flow-through entity has a flow-through payroll amount for a territory for an accounting period if the member has costs that would be eligible payroll costs if the member were located in that territory and were not a flow-through entity and—

(a)

there is at least one other member of the group—

(i)

that is not a flow-through entity,

(ii)

that is located in that territory, and

(iii)

to whom a proportion of the underlying profits of the flow-through entity for the accounting period are allocated under section 168 (underlying profits of transparent entities) or, where the underlying profits of the entity are nil or less, would be so allocated if the flow-through entity had underlying profits of 100 euros, or

(b)

the entity—

(i)

is a flow-through entity to some extent for that period as a result of section 169 (certain non tax resident entities to be treated as flow-through entities),

(ii)

is not a flow-through entity to some extent for that period, and

(iii)

was created in that territory.

(2)

Section 196 applies for the purposes of determining a flow-through payroll amount of a flow-through entity for a territory as it applies for the purposes of determining eligible payroll costs but as if—

(a)

any reference in that section to the territory of the member were to the territory to which the flow-through payroll amount relates, and

(b)

subsection (7) of that section were omitted.

(3)

Where a member of a multinational group that is a flow-through entity has a flow-through payroll amount for a territory for an accounting period, the eligible payroll costs of each member of the group falling within subsection (1)(a) for that period (which may be nil) are to be increased by the amount given by multiplying the flow-through payroll amount by the relevant proportion in relation to that member for that period.

(4)

The relevant proportion in relation to a member for an accounting period is the proportion of the underlying profits of the flow-through entity for that period—

(a)

in a case where the flow-through entity has underlying profits that exceed nil for that period, that is allocated to that member under section 168, or

(b)

in a case where the underlying profits of the flow-through entity for that period are nil or less, that would be allocated to that member if the flow-through entity had underlying profits of 100 euros.

(5)

Where a flow-through entity—

(a)

is a flow-through entity to some extent for an accounting period as a result of section 169,

(b)

is not a flow-through entity to some extent for that period, and

(c)

was created in a territory for which it has a flow-through payroll amount for that period,

the eligible payroll costs of that entity for that period (which may be nil) are to be increased by the amount given by multiplying that flow-through payroll amount by the relevant proportion in relation to that entity for that period.

(6)

The relevant proportion in relation to that entity for an accounting period is the proportion of the underlying profits of the entity for that period—

(a)

in a case where the entity has underlying profits that exceed nil for that period, that are not allocated to any other entity under section 168, or

(b)

in a case where the underlying profits of the entity for that period are nil or less, that would not be allocated to any other entity under that section if the entity had profits of 100 euros.

(7)

For the purposes of applying this section in relation to a multinational group whose ultimate parent is a flow-through entity, the ultimate parent is to be treated as not being a flow-through entity.

198ZBEligible tangible asset amount: flow-through entities

(1)

A member of a multinational group that is a flow-through entity that is not the ultimate parent has a flow-through tangible asset amount for a territory for an accounting period if the member holds one or more assets in that territory and—

(a)

there is at least one other member of the group—

(i)

that is not a flow-through entity,

(ii)

that is located in that territory, and

(iii)

to whom a proportion of the underlying profits of the flow-through entity for the accounting period are allocated under section 168 (underlying profits of transparent entities) or, where the underlying profits of the entity are nil or less, would be so allocated if the flow-through entity had underlying profits of 100 euros, or

(b)

the entity—

(i)

is a flow-through entity to some extent for that period as a result of section 169 (certain non tax resident entities to be treated as flow-through entities),

(ii)

is not a flow-through entity to some extent for that period, and

(iii)

was created in that territory.

(2)

Sections 197 and 197A apply for the purposes of determining a flow-through tangible asset amount of a flow-through entity for a territory as they apply for the purposes of determining an eligible tangible asset amount but as if—

(a)

any reference in those sections to the territory of the member were to the territory to which the flow-through tangible asset amount relates, and

(b)

subsection (10) of section 197 were omitted.

(3)

Where a member of a multinational group that is a flow-through entity has a flow-through tangible asset amount for a territory for an accounting period, the eligible tangible asset amount of each member of the group falling within subsection (1)(a) for that period (which may be nil) is to be increased by the amount given by multiplying the flow-through tangible asset amount by the relevant proportion in relation to that member for that period.

(4)

The relevant proportion in relation to a member for an accounting period is the proportion of the underlying profits of the flow-through entity for that period—

(a)

in a case where the flow-through entity has underlying profits that exceed nil for that period, that is allocated to that member under section 168, or

(b)

in a case where the underlying profits of the flow-through entity for that period are nil or less, that would be allocated to that member if the flow-through entity had underlying profits of 100 euros.

(5)

Where a flow-through entity—

(a)

is a flow-through entity to some extent for an accounting period as a result of section 169,

(b)

is not a flow-through entity to some extent for that period, and

(c)

was created in a territory for which it has a flow-through tangible asset amount for that period,

the eligible tangible asset amount of that entity for that period (which may be nil) is to be increased by the amount given by multiplying that flow-through tangible asset amount by the relevant proportion in relation to that entity for that period.

(6)

The relevant proportion in relation to that entity for an accounting period is the proportion of the underlying profits of the entity for that period—

(a)

in a case where the entity has underlying profits that exceed nil for that period, that are not allocated to any other entity under section 168, or

(b)

in a case where the underlying profits of the entity for that period are nil or less, that would not be allocated to any other entity under that section if the entity had profits of 100 euros.

(7)

For the purposes of applying this section in relation to a multinational group whose ultimate parent is a flow-through entity, the ultimate parent is to be treated as not being a flow-through entity.

198ZCEligible payroll costs and eligible tangible asset amount: flow-through ultimate parent

(1)

In determining for an accounting period the eligible payroll costs or eligible tangible asset amount of a flow-through entity that is the ultimate parent of a multinational group, the amount given by section 196 or 197 is to be reduced by the section 170 proportion.

(2)

In subsection (1), “the section 170 proportion” means the proportion of the adjusted profits of the flow-through entity for the accounting period that—

(a)

in a case where subsection (1) of 170 (adjustments for ultimate parent that is a flow-through entity) applies, is excluded under that subsection, or

(b)

in a case where that subsection does not apply as a result of the entity having not made a profit for that period, would be excluded under that subsection if the entity had adjusted profits of 100 euros.

(3)

In subsection (2), “the adjusted profits” means the adjusted profits before the application of section 170.”

34

In section 196 (eligible payroll costs), after subsection (6) insert—

“(7)

A member of a multinational group that is a flow-through entity that is a responsible member of the group but which is not the ultimate parent is to be regarded as having nil eligible payroll costs (subject to the application of section 198ZA).”

35

In section 197 (eligible tangible asset amount), after subsection (9) insert—

“(10)

A member of a multinational group that is a flow-through entity that is a responsible member of the group but which is not the ultimate parent is to be regarded as having an eligible tangible asset amount of nil (subject to the application of section 198ZB).”

Eligible payroll costs

36

In section 196 (eligible payroll costs)—

(a)

in subsection (1) omit paragraph (b);

(b)

in subsection (b) of subsection (3), for the words from “acting” to “group” substitute “participating in the ordinary operating activities of the member”.

Additional top-up amounts

37

In section 203 (additional top-up amounts where covered taxes less than expected), in subsections (4)(b), (5)(b), (6)(b) and (7)(b), for “reduction by relevant QDT credit” substitute “any reduction”.

38 (1)

Section 206 (additional top-up amounts where recalculations required) is amended as follows.

(2)

In subsection (1)—

(a)

in the words before paragraph (a), after “members” insert “(“the current members”)”, and

(b)

in paragraph (b), before “members” insert “current”.

(3)

In subsection (2)—

(a)

in paragraph (a), for “those members would have for a prior period” substitute “the standard members of the group in the territory in a prior period would have for that period”, and

(b)

in the words after paragraph (b), before “members” insert “current”.

(4)

In subsection (3)—

(a)

in Step 1, for “those members would have had for the prior period” substitute “the standard members of the group in the territory for the prior period would have had for that period”,

(b)

in Step 3, after “nil” insert “(and if there are no such results, the result of this step is nil)”, and

(c)

in Step 4—

(i)

before “members” insert “current”, and

(ii)

for “Step 2” substitute “Step 3”.

(5)

In subsection (4)—

(a)

for “those members” substitute “the current members”, and

(b)

for “in accordance with subsections (5) to (8)” substitute “as follows”.

(6)

In subsection (5)—

(a)

in paragraph (a)—

(i)

for “standard” substitute “current”, and

(ii)

before “period” insert “current”,

(b)

in paragraph (b), for “members for the members’ territory” substitute “current members”, and

(c)

in paragraph (c), for “reduction by relevant QDT credit” substitute “any reduction”.

(7)

In subsection (6)—

(a)

in paragraph (a)—

(i)

for “standard” substitute “current”, and

(ii)

before “period” insert “current”,

(b)

in paragraph (b), for “standard members in the territory” substitute “current members”, and

(c)

in paragraph (c), for “reduction by relevant QDT credit” substitute “any reduction”.

(8)

In subsection (7)—

(a)

in paragraph (a)—

(i)

for “standard” substitute “current”,

(ii)

before “period”, in the first place it occurs, insert “current”, and

(iii)

for “members for the members’ territory” substitute “the current members”, and

(b)

in paragraph (b)—

(i)

for “reduction by relevant QDT credit” substitute “any reduction”, and

(ii)

for “members for the member’s territory” substitute “current members”.

(9)

In subsection (8)—

(a)

in paragraph (a)—

(i)

for “standard” substitute “current”, and

(ii)

for “members for the members’ territory” substitute “the current members”,

(b)

in paragraph (b)—

(i)

for “reduction by relevant QDT credit” substitute “any reduction”, and

(ii)

for “members for the member’s territory” substitute “current members”, and

(c)

in the words after paragraph (b) for the words from “amount”, in the second place it occurs, to the end substitute “relevant amount.”

(10)

After subsection (8) insert—

“(9)

The relevant amount is the amount given by multiplying—

(a)

the sum of the amounts of qualifying domestic top-up tax accrued by the current members in the current period, by

(b)

the amount given by dividing—

(i)

the collective additional amount under this section, by

(ii)

the sum of that collective additional amount, any collective additional amount under section 203 and the total top-up amount for the current period.”

Joint ventures

39

In section 226 (joint venture group), in subsection (2)—

(a)

in the words before paragraph (a), after “group” insert “for an accounting period of that entity”,

(b)

in paragraph (a), after “entity” insert “for all or any part of that period”,

(c)

in paragraph (b), after “entity” insert “at any time in that period”,

(d)

in paragraph (c), for “qualifying multinational group” substitute “multinational group that meets condition A in section 129(2) for that accounting period (revenue threshold exceeded in at least 2 of previous 4 accounting periods)”, and

(e)

in paragraph (f), for “of which the entity is a member” substitute “referred to in paragraph (a)”.

40 (1)

Section 227 (application of Part to joint venture groups) is amended as follows.

(2)

In subsection (1)—

(a)

in the words before paragraph (a)—

(i)

after “but” insert “in their application by virtue of this subsection”,

(ii)

after “Part”, in the second place it occurs, insert “, this Chapter other than this section and section 226”, and

(iii)

for “apply” substitute “have effect”;

(b)

in paragraph (c), for “the multinational” substitute “each respective multinational”.

(3)

In subsection (2), for “Part,” substitute “Part (in its application by virtue of subsection (1)),”

(4)

In subsection (3)—

(a)

after “But” insert “(in the application of this Part by virtue of subsection (1))”;

(b)

for “that” substitute “the joint venture”.

41 (1)

Section 266 (qualifying entities) is amended as follows.

(2)

In subsection (1), after “An entity” insert “which is not a member of a joint venture group”.

(3)

After subsection (1) insert—

“(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.”

Domestic top-up tax

42 (1)

Section 270 (amount charged) is amended as follows.

(2)

Before subsection (1) insert—

“A1

Where a person is chargeable to domestic top-up tax for an accounting period as, or in respect of, a qualifying entity which is a member of a group, the amount (if any) the person must pay is determined as follows—

Step 1

Determine (in accordance with section 272)—

(a)
whether the entity has a top-up amount for that period, and

(b)
the extent of any such amount.

Step 2

If the result of Step 1 is not expressed in sterling, convert the result of that Step to sterling.”

(3)

In subsection (1)—

(a)

in the words before Step 1, for “as a qualifying entity or in respect of a qualifying entity” substitute “as or in respect of a qualifying entity which is not a member of a group”;

(b)

in Step 1, after “Determine” insert “(in accordance with section 273)”.

43 (1)

Section 272 (determining top-up amounts of entity that is a member of a group) is amended as follows.

(2)

After subsection (3) insert—

“(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).”

(3)

In subsection (8) omit paragraph (e).

Domestic top-up tax: excluded entities

44

In section 267 (DTT excluded entities), after subsection (3) insert—

“(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.”

De minimis rule

45 (1)

In section 199 (election to treat total top-up amount as nil)—

(a)

in subsection (1)—

(i)

for “total top-up amount” substitute “top-up amounts of the relevant members”, and

(ii)

for “is” substitute “are”;

(b)

in subsections (2)(a), (3), (4), (6)(a) and (6)(b), for “standard” substitute “relevant”;

(c)

after subsection (2) insert—

“(2A)

In this section, a member of a multinational group is a “relevant” member if it is—

(a)

a standard member of the group, or

(b)

a minority owned member of the group.”;

(d)

in the heading, for “total top-up amount” substitute “certain top-up amounts”.

(2)

In section 228 (minority owned members), after subsection (4) insert—

“(5)

But neither subsection (3) nor (4) applies to the reference to “standard member” in section 199(2A) (election to treat top-up amounts of relevant members as nil).”

Transitional safe harbour

46 (1)

Part 2 of Schedule 16 (transitional safe harbour) is amended as follows.

(2)

In paragraph 3 (election)—

(a)

in sub-paragraph (1), after “election” insert “under this paragraph”,

(b)

in sub-paragraph (2)(c), for “the election” substitute “a transitional safe harbour election”,

(c)

in sub-paragraph (7), for “the information” substitute “all relevant information”,

(d)

after that sub-paragraph insert—

“(7A)

For the purposes of sub-paragraph (7), “all relevant information” means all of the information described in paragraphs (a) to (d) of paragraph 4(3).”, and

(e)

after sub-paragraph (9) insert—

“(10)

An election under this paragraph may not be made in respect of the nominal territory of a stateless member of a multinational group.”

(3)

In paragraph 4 (qualified financial statements), in sub-paragraph (1)—

(a)

in paragraph (a)—

(i)

for “statement” substitute “statements”, and

(ii)

after “parent” insert “provided the statements are prepared in accordance with acceptable accounting standards or an authorised accounting standard”, and

(b)

for paragraph (b) substitute—

“(b)

financial statements of members of the group provided—

(i)

they are prepared in accordance with acceptable accounting standards or an authorised accounting standard, and

(ii)

the information contained in those statements is reliable and is maintained in a manner that is consistent with its use under the accounting standard used in preparing those statements.”

(4)

In paragraph 4, after sub-paragraph (1) insert—

“(1A)

But see also paragraph 4A in cases where those accounts or statements reflect purchase price accounting adjustments.”

(5)

In paragraph 4, in sub-paragraph (3), in paragraph (d), after “income” insert “exclusion”.

(6)

After paragraph 4 insert—

“Accounts or statements reflecting purchase price accounting adjustments

4A

(1)

This paragraph applies in relation to accounts or financial statements (“the relevant statements”) in relation to a multinational group in a territory that—

(a)

fall within paragraph (a) or (b) of paragraph 4(1), and

(b)

reflect purchase price accounting adjustments.

(2)

If—

(a)

a country-by-country report has been submitted in respect of the group in that territory in respect of a period commencing on or after 1 January 2023 and concluding before the commencement of the accounting period for which the transitional safe harbour election is being made,

(b)

the financial accounts used for the preparation of that report did not reflect purchase price accounting adjustments, and

(c)

there is no requirement to reflect purchase price adjustments in the relevant statements under the law of the territory that applies in relation to the preparation of those statements,

the relevant statements are not qualified financial statements.

(3)

Sub-paragraph (4) applies if—

(a)

the relevant statements are qualified financial statements, and

(b)

an impairment of goodwill in relation to a transaction entered into on or after 1 December 2021 is reflected in a member’s profit (loss) before income tax.

(4)

Adjust the profit (loss) before income tax of the member so that it does not reflect that impairment for the purposes of determining—

(a)

in a case where the condition in sub-paragraph (5) is not met, whether the simplified effective tax rate test is met (see paragraph 8), and

(b)

in any case, whether the routine profits test is met (see paragraph 9).

(5)

The condition in this sub-paragraph is that the relevant statements reflect—

(a)

a reversal of deferred tax liability in relation to the goodwill, or

(b)

the recognition or increase of a deferred tax asset in relation to it.”

(7)

In paragraph 5 (qualifying income tax expense)—

(a)

the existing text becomes sub-paragraph (1), and

(b)

after that sub-paragraph insert—

“(2)

For the purposes of this Part of this Schedule, any amount of qualifying income tax expense that is in respect of profits of a permanent establishment and that is incurred in the territory of the permanent establishment is to be regarded as the expense of that permanent establishment (rather than of the main entity).”

Transitional safe harbour: arbitrage arrangements

47 (1)

In Schedule 16, after paragraph 6 insert—

“Deduction and non-inclusion arrangements and duplicate loss arrangements

6A

(1)

Where the aggregate profit (loss) before income tax of the standard members of a multinational group in a territory reflects disqualified expense, the aggregate profit (loss) before income tax is to be adjusted to exclude it.

(2)

Disqualified expense means any expense or loss of a member of a multinational group reflected in the financial statements of the member arising as a result of qualifying arrangements that involve another member of the group—

(a)

to the extent that the expense or loss is a result of the member directly or indirectly being provided credit by the other member or the other member otherwise making an investment in the member under the arrangements and—

(i)

the credit or investment is not reflected as an increase in the revenue, or a gain, in the financial statements of the other member that corresponds to the expense or loss, or

(ii)

it is not reasonable to expect that the credit or investment will be reflected as an increase in the taxable income of the other member over the life of the arrangements that corresponds to the expense or loss, or

(b)

to the extent that—

(i)

the expense or loss is also included as an expense or loss in the financial statements of another member of the group, or

(ii)

the expense or loss is mirrored by an amount that can be deducted from the taxable income of another member of the group that is located in a different territory to the member.

(3)

But—

(a)

an expense or a loss is not disqualified expense as a result of sub-paragraph (2)(a) if it is solely referable to the provision of qualifying tier one capital,

(b)

an expense or loss is not disqualified expense as a result of sub-paragraph (2)(b)(i) to the extent it is offset against revenue that is included in the financial statements of each member whose financial statements reflect the expense or loss, and

(c)

an expense or loss is not disqualified expense as a result of sub-paragraph (2)(b)(ii) to the extent that it is offset against revenue or income that is included in both—

(i)

the financial statements that reflect the expense or loss, and

(ii)

the taxable income from which the amount that mirrors the expense or loss can be deducted.

(4)

An expense or loss included in the financial statements of a member of a multinational group is to be ignored to the extent that the expense or loss is included in the financial statements of another member of the group as a result of—

(a)

the other member having a direct or indirect ownership interest in the member, and

(b)

the member being regarded as tax transparent in the territory in which the other member is located.

(5)

Where as a result of sub-paragraph (2)(b)(i) more than one standard member in a territory has disqualified expense in respect of the same expense or loss, sub-paragraph (1) applies to all but one of those amounts of disqualified expense.

(6)

For the purposes of sub-paragraph (2)(a)(ii), ignore any increase in the taxable income of the other member—

(a)

that is offset by a devalued tax attribute, or

(b)

where—

(i)

the payment that gives rise to the expense or loss in question also results in a taxable deduction or loss of a further member of the group located in the same territory as the other member, and

(ii)

that deduction or loss is not reflected in the aggregate profit (loss) before income tax for that territory for the purposes of determining whether an election under paragraph 3 that applies in relation to that further member can be made.

(7)

For the purposes of sub-paragraph (6)(a), a “devalued tax attribute” means a tax attribute of a member of a multinational group—

(a)

whose value is reflected in financial statements of the member at less than the amount of the attribute multiplied by the tax rate that applies to the member, or

(b)

whose value would be so reflected if the qualifying arrangements that result in disqualified expense or disqualified tax expense (see paragraph 6B) were ignored.

(8)

For the purposes of this paragraph and paragraph 6B, arrangements are “qualifying” if—

(a)

they were entered into on or after 16 December 2022, or

(b)

they were entered into before that date, but—

(i)

the arrangements are amended on or after that date (including by way of a substitution of one or more of the parties),

(ii)

the performance of rights or obligations under the arrangements is altered on or after that date (for example where payments under the arrangements are reduced or ceased), or

(iii)

the accounting treatment of the arrangements is varied on or after that date.

(9)

In this paragraph and in paragraph 6B reference to the financial statements of a member of a multinational group is—

(a)

in relation to an accounting period in which an election under paragraph 3 that applies in relation to the member was made, or for the purposes of determining whether such an election can be made, to the financial statements, or financial accounts, that form the basis of qualified financial statements in relation to the member for the purposes of this Part of this Schedule, or

(b)

otherwise, to the underlying profits accounts of that member (see section 136).

Duplicate tax recognition arrangements

6B

(1)

Where the aggregate qualifying income tax expense of the standard members of a multinational group in a territory reflects disqualified tax expense, the aggregate qualifying income tax expense is to be adjusted to exclude it.

(2)

Disqualified tax expense means any qualifying income tax expense of a member of a multinational group reflected in the financial statements of the member that, as a result of qualifying arrangements, is also reflected in—

(a)

the covered tax balance of one or more other members of the group, or

(b)

the qualifying income tax expense of one or more other members of the group.

(3)

But qualifying income tax expense is not to be regarded as disqualified tax expense—

(a)

if the income to which the tax expense relates is reflected in the financial statements of each member of the group falling within sub-paragraph (2)(a) and (b) to at least the same extent to which the tax expense is reflected in the covered tax balance, or qualifying income tax expense, of each of those members;

(b)

to the extent that the duplication of the tax expense would not arise if the adjustments that would have been made in determining the member’s covered tax balance (and that are not required to be made for the purpose of determining the member’s qualifying income tax expense) had been made.”

(2)

The amendment made by sub-paragraph (1) has effect in relation to—

(a)

disqualified expense accruing on or after 14 March 2024, and

(b)

disqualified tax expense attributable to profits accruing on or after 14 March 2024.

(3)

In paragraph 4 (qualified financial statements and basis of calculations), in sub-paragraph (4), in the words after paragraph (b) for “paragraph 6” substitute “paragraphs 6 to 6B”.

(4)

In section 155 (qualifying tier one capital), in subsection (3), for “section” substitute “Part”.

(5)

In Schedule 17, in the table, at the appropriate place insert—

“qualifying tier one capital

section 155(3)”

Substance based income exclusion: removal of provision for election

48 (1)

In section 195 (substance based income exclusion) omit subsections (2) and (3).

(2)

Accordingly, in paragraph 2 (annual elections) of Schedule 15 (multinational top-up tax: elections), omit paragraph (e).

Inclusion ratio

49 (1)

Section 201 (inclusion ratio) is amended as follows.

(2)

In subsection (1), in Step 2, at the end insert “, but excluding ownership interests in respect of which an amount has been excluded from the relevant member’s adjusted profits.”

(3)

Omit subsection (4).

50 (1)

Section 223 (adjustments) is amended as follows.

(2)

In subsection (7)—

(a)

in paragraph (a), after “group,” insert “, other than ownership interests in respect of which an amount has been excluded from the adjusted profits of the entity,”;

(b)

in paragraph (b), before “profits” insert “adjusted”;

(c)

at the end insert—

“(but if the amount mentioned in paragraph (b) is nil, the adjustment factor is to be taken to be nil).”

(3)

In subsection (8)—

(a)

in paragraph (a), after “made,” insert “, other than ownership interests in respect of which an amount has been excluded from the adjusted profits of the entity,”;

(b)

at the end insert—

“(but if the amount mentioned in paragraph (b) is nil, the adjustment factor is to be taken to be nil).”

(4)

In subsection (9), after “201(2)” insert “and (3)”.

Specification of territories and taxes

51 (1)

In section 241 (Pillar Two territories)—

(a)

in subsection (1), before “regulations” insert “, or in accordance with,”,

(b)

after that subsection insert—

“(1A)

Regulations may provide for the specification of a territory to be made by notice published by the Commissioners for His Majesty’s Revenue and Customs in accordance with the regulations.”,

(c)

in subsection (2)—

(i)

after “Regulations” insert “, or a notice,”, and

(ii)

for “Treasury consider” substitute “appropriate authority considers”,

(d)

after that subsection insert—

“(2A)

The “appropriate authority” means—

(a)

in relation to the specification of a territory in regulations, the Treasury, or

(b)

in relation to the specification of a territory made by notice, the Commissioners for His Majesty’s Revenue and Customs.”,

(e)

in subsection (3)—

(i)

for “that”, in the first place it occurs, substitute “for”,

(ii)

omit “is”,

(iii)

for “the regulations are made”, in the first place it occurs, substitute “the territory was specified”, and

(iv)

for “that the specification of a territory previously specified ceases to have effect” substitute “for the specification of a territory to cease to have effect in relation to accounting periods commencing”, and

(f)

after that subsection insert—

“(4)

A territory outside the United Kingdom is to be treated as a Pillar Two territory for the purposes of any accounting period that concluded before the first regulations under this section have been made, if it is a territory in which a tax applies for that accounting period—

(a)

that is a Qualified IIR for the purposes of the Pillar Two rules, or

(b)

that it is reasonable to conclude is likely to be a Qualified IIR for the purposes of those rules.”

(2)

In section 256 (qualifying domestic top-up tax)—

(a)

in subsection (1)(b), for “a” substitute “, or in accordance with,”,

(b)

after that subsection insert—

“(1A)

Regulations may provide for the specification of a tax to be made by notice published by the Commissioners for His Majesty’s Revenue and Customs in accordance with the regulations.”,

(c)

in subsection (2)—

(i)

after “regulations” insert “, or a notice,”, and

(ii)

for “Treasury consider” substitute “appropriate authority considers”,

(d)

after that subsection insert—

“(2A)

The “appropriate authority” means—

(a)

in relation to the specification of a tax in regulations, the Treasury, or

(b)

in relation to the specification of a tax made by notice, the Commissioners for His Majesty’s Revenue and Customs.”,

(e)

in subsection (4)—

(i)

for “that”, in the first place it occurs, substitute “for”,

(ii)

omit “is”,

(iii)

for “the regulations are made”, in the first place it occurs, substitute “the tax was specified”, and

(iv)

for “that the specification of a tax previously specified ceases to have effect” substitute “for the specification of a tax to cease to have effect in relation to accounting periods commencing”, and

(f)

after that subsection insert—

“(5)

A tax (other than domestic top-up tax which is always a qualifying domestic top-up tax) is to be treated as a qualifying domestic top-up tax for the purposes of any accounting period that concluded before the first regulations under this section have been made if—

(a)

it is a Qualified Domestic Minimum Top-up Tax for that accounting period for the purposes of the Pillar Two rules, or

(b)

it is reasonable to conclude that it is likely to be a Qualified Domestic Minimum Top-up Tax for that accounting period for the purposes of those rules.”

(3)

In Schedule 16A (qualifying domestic top-up tax safe harbour election)—

(a)

in paragraph 1(3)—

(i)

in the words before paragraph (a), for “may only be made” substitute “is only valid”,

(ii)

omit the “and” after paragraph (b), and

(iii)

after that sub-paragraph insert—

“(ba)

the accreditation applies to the accounting period, and”, and

(b)

in paragraph 2—

(i)

the existing text becomes sub-paragraph (1),

(ii)

in that sub-paragraph, before “regulations” insert “, or in accordance with,”,

(iii)

after that sub-paragraph insert—

“(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).”, and

(iv)

at the end insert—

“(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.”

(4)

The amendments made by sub-paragraphs (1)(f), (2)(f) and (3)(b)(i) and (iv) are treated as having come into force on 7 November 2024.

Filing etc not required before 30 June 2026

52 (1)

Schedule 14 (administration) is amended as follows.

(2)

In paragraph 10, after sub-paragraph (11) insert—

“(12)

Where (ignoring this sub-paragraph) the date by which an information return or overseas return notification must be submitted falls before 30 June 2026, the date by which that return or notification must be submitted is 30 June 2026 instead.”

(3)

In paragraph 13, after sub-paragraph (10) insert—

“(11)

Where (ignoring this sub-paragraph) the date by which a self assessment return or below-threshold notification must be submitted falls before 30 June 2026, the date by which that return or notification must be submitted is instead 30 June 2026 instead.”

(4)

In paragraph 32, after sub-paragraph (3) insert—

“(3A)

Where (ignoring this sub-paragraph) the date on which an amount of multinational top-up tax must be paid falls before 30 June 2026, the date on which it must be paid is 30 June 2026 instead.”

Minor amendments

53

In section 141 (general exclusion of dividends), in subsection (9) omit paragraph (b) and the “or” preceding it.

54

In section 148A (transferable tax credits), in subsection (5)(a)—

(a)

in sub-paragraph (i), for “before the end of 15 months” substitute “in the period beginning with the day on which the credit was granted and ending 15 months after the end”, and

(b)

in sub-paragraph (ii), for “before the end of 15 months of the accounting period in which they are granted” substitute “in that period”.

55

In section 170 (adjustments for ultimate parent that is a flow-through entity), in subsection (9)(b), for the words from “the ultimate parent’s“ to the end substitute “—

(i)

the entity is regarded as tax transparent in the territory in which the ultimate parent is located, and

(ii)

the ultimate parent’s interest in that entity is held directly or through one or more entities all of which are regarded as tax transparent in that territory.”

56

In section 171 (ultimate parent subject to qualifying dividend regime)—

(a)

in subsection (2)(b), omit “adjusted”, and

(b)

in subsection (6), for “underlying”, in each place it occurs, substitute “adjusted”

57

In section 176B (value of non-marketable transferable tax credits: originator), in subsection (3), after “the”, in the fourth place it occurs, insert “end of the”.

58

In section 176C (value of non-marketable transferable tax credits: purchaser)—

(a)

in subsection (4)(b), for “underlying” substitute “adjusted”;

(b)

in subsection (5)(a)(ii) omit “reflected”;

(c)

in subsection (6) for “underlying” substitute “adjusted”.

59

In section 176D (tax credits etc allocated under tax equity partnerships), in subsection (10), for “the amount multiplied” substitute “that amount”.

60

In section 211 (transfer of assets or liabilities to a member of a multinational group)—

(a)

in subsection (2)—

(i)

omit the “and” after paragraph (b), and

(ii)

after that paragraph insert—

“(ba)

the transferor and the transferee are not members of the same type located in the same territory, and”, and

(b)

after subsection (4) insert—

“(5)

For the purposes of subsection (2) two members of a multinational group are of the same type if—

(a)

they are both standard members of the group,

(b)

they are both investment entities, or

(c)

they are both members of the same minority subgroup (see section 228).”

61

In section 212 (meaning of “qualifying reorganisation”), in subsection (4), after “is”, in the third place it occurs, insert “no greater than”.

62

In section 215 (undistributed income amount), in subsection (2)(c) omit “the made a loss”.

63

In section 216 (election where assets and liabilities adjusted to fair value for tax purposes), in subsection (7)(a), before “immediately after” insert “or liability”.

64

In section 217 (post filing adjustments of covered taxes), after subsection (1) insert—

“(1A)

In the case of a prior accounting period for which there is no information return, overseas information return or self-assessment return, the reference to covered taxes being reflected in such a return is to the covered taxes as would have been reflected in such a return had there been one.”

65

In section 217(8), for paragraph (a) substitute—

“(a)

the aggregate covered tax balance of the standard members of the group in the territory of the member for the prior period is not reduced by 1 million euros or more, and”.

66

In section 220 (top-up amount of investment entity)—

(a)

in subsection (1)—

(i)

in Step 8, after “entity” insert “, unless the entity has a positive undistributed income amount (see sections 214 and 215) for the period (in which case proceed to Step 9), and

(ii)

after that Step insert—

“Step 9

Where this Step applies, the top-up amount for the entity is the sum of—

(a)
the result of Step 8, and

(b)
the positive undistributed income amount for the entity for the period multiplied by 15%.”, and

(b)

omit subsection (2).

67

In section 222 (investment entity effective tax rate), in Step 9 for “Step 1” substitute “Step 2”.

68

In section 242 (ownership interests and controlling interests), in subsection (5)(a) omit “financial”.

69

In section 255 (Pillar Two rules), in subsection (6), for “3(1)” substitute “3 of Schedule 16”.

70

In Schedule 14 (administration of multinational top-up tax)—

(a)

in paragraph 2(12), for “entity” substitute “member”;

(b)

in paragraph 7(6), for “or Revenue” substitute “of Revenue”.

71

In Schedule 16A (multinational top-up tax: safe harbours), in paragraph 4(1)(b) omit “members of the group that are”.

Commencement

72 (1)

The following provisions of this Part of this Schedule have effect in relation to accounting periods commencing on or after 31 December 2023—

(a)

paragraph 11 (permanent establishments as excluded entities);

(b)

paragraph 39(d) (joint venture conditions);

(c)

paragraph 48 (removal of requirement for SBIE election);

(d)

paragraph 51 (specification of territories and taxes);

(e)

paragraph 52 (filing etc not required before 30 June 2026);

(f)

paragraph 66 (top-up amount of investment entity).

(2)

Paragraph 47 has effect in relation to relation to accounting periods commencing on or after 31 December 2023, subject to sub-paragraph (2) of that paragraph.

(3)

The following provisions of this Part of this Schedule have effect in relation to accounting periods commencing on or after 31 December 2024—

(a)

paragraphs 18 to 24 (tax equity partnerships);

(b)

paragraphs (a) to (c) of paragraph 39.

(4)

The other provisions of this Part of this Schedule have effect in relation to—

(a)

where a retrospection election has been made in relation to a multinational group, a group, or a qualifying entity that is not a member of a group, accounting periods of that multinational group, group or entity commencing on or after 31 December 2023, or

(b)

otherwise, accounting periods commencing on or after 31 December 2024.

(5)

A retrospection election—

(a)

is to be made—

(i)

in the case of a multinational group or group, by the filing member, or

(ii)

in the case of a qualifying entity that is not a member of a group, by that entity,

(b)

must be made on or before the day on which the self-assessment return or below-threshold notification for the first accounting period of the multinational group, group or entity commencing on or after 31 December 2023 is made, and

(c)

may not be revoked.

(6)

But sub-paragraph (7) applies where any member, or former member, of a multinational group or group is, or would be on either or both of the relevant assumptions—

(a)

a person chargeable to domestic top-up tax that has top-up amounts or additional top-up amounts for any accounting period commencing before 31 December 2024 as a result of the person’s membership of the multinational group or group, or

(b)

a qualifying entity that has top-up amounts or additional top-up amounts for any accounting period commencing before 31 December 2024 as a result of the entity’s membership of the multinational group or group in respect of which a person is chargeable to domestic top-up tax.

(7)

Where this sub-paragraph applies, a retrospection election may not be made without the written consent of each such person.

(8)

For the purposes of sub-paragraph (6), the relevant assumptions are—

(a)

that the retrospection election had been made, and

(b)

that no election under section 271 of F(No.2)A 2023 had been made.

(9)

Where—

(a)

the filing member of a multinational group is not a responsible member of that multinational group, or

(b)

there is more than one responsible member of that multinational group,

a retrospection election may not be made without the written consent of each responsible member.

(10)

Sub-paragraph (11) applies where—

(a)

the filing member of a multinational group or group has made a retrospection election,

(b)

at the time the election was made it was reasonable for the filing member to consider that the consent of a person was not required,

(c)

that consent was not given,

(d)

the filing member becomes aware that the consent of that person was, or may have been, required, and

(e)

the written consent of that person is given within the period of 60 days beginning with the day on which the condition in paragraph (d) is first met.

(11)

The consent of that person is to be treated as having been given before the election was made.

(12)

References in this paragraph to a “group”, other than in the expression “multinational group”, are to a group for the purposes of Part 4 of F(No.2)A 2023 (domestic top-up tax).