Finance (No. 2) Act 2023

273 Determining top-up amounts of entity that is not a member of a group U.K.

(1) Chapters 3 to 6, 8 and 9 of Part 3 apply for the purposes (“domestic entity purposes”) of determining whether a qualifying entity that is not a member of a group has top-up amounts or additional top-up amounts, and the extent of those amounts, as they apply for the purpose of determining the same for the purposes of multinational top-up tax.

(2) Chapter 3 of that Part has effect for domestic entity purposes as if for section 132 there were substituted—

“132 Effective tax rate

The effective tax rate of a qualifying entity that is not a member of a group is determined as follows—

• Step 1

  Determine, in accordance with Chapter 4 of Part 3, the adjusted profits for that period of that member.

• Step 2

  If, on determining those adjusted profits, the member has not made a profit, the effective tax rate is to be treated as 15%. Otherwise, proceed to Step 3.

• Step 3

  Determine the covered tax balance of the member for the period (which may be negative) in accordance with Chapter 5 of Part 3.

• Step 4

  If that balance is nil the effective tax rate is 0%. Otherwise, proceed to Step 5.

• Step 5

  Divide the covered tax balance by the adjusted profits.

• Step 6

  Except where Step 2 or 4 applies, the effective tax rate of the entity is X%, where X (which will be negative if the covered tax balance is negative) is the result of Step 5 multiplied by 100.”

(3) That Part has effect for domestic entity purposes as if—

(a) references to “member of a multinational group” (however framed and including references to multiple members) were to “qualifying entity”;

(b) any reference (however framed) to the consolidated financial statements of the ultimate parent were to the qualifying financial statements of the entity;

(c) in section 194 (total top-up amount), subsections (2) to (7) were omitted;

(d) in section 203 (additional top-up amounts: covered taxes less than expected), subsections (3) to (7) were omitted;

(e) in section 206 (additional top-up amounts: recalculations), subsections (4) to (8) were omitted.

(4) Part 3 has effect for those purposes as if the following provisions (which are only relevant to groups or have no relevance for domestic purposes) were omitted—

(a) in section 134 (underlying profits as determined for statements of ultimate parent), subsections (2) to (9);

(b) section 135 (permanent establishments);

(c) section 139 (consolidation adjustments);

(d) section 140 (purchase accounting adjustments);

(e) in section 141 (general exclusion of dividends), subsection (2)(c);

(f) section 149 (arm’s length requirement);

(g) section 150 (transactions between group members);

(h) section 154 (exclusion of qualifying intra-group financing arrangement expenses);

(i) sections 159 and 160 (adjustments applicable to permanent establishments);

(j) in section 163 (election to spread capital gains), subsection (3);

(k) section 164 (election to exclude intra-group transactions);

(l) section 167 (underlying profits of member of group seen as transparent);

(m) in section 168 (underlying profits of flow-through entities), subsection (8);

(n) section 169 (non-tax resident entities to be treated as flow-through entities);

(o) section 170 (adjustments for ultimate parent that is flow-through entity);

(p) section 172 (ultimate parent subject to deductible dividend regime);

(q) section 177 (allocation of covered taxes: permanent establishments);

(r) section 178 (reallocation of tax expense);

(s) sections 179 and 180 (controlled foreign company tax regimes);

(t) section 181 (distributions from other group members);

(u) section 183 (qualifying foreign tax credits);

(v) sections 189 to 192 (deemed distribution tax election);

(w) sections 208 to 212 (restructuring of groups);

(x) sections 213 to 215 (elections in relation to investment entities);

(y) in section 216 (election where assets and liabilities adjusted to fair value), subsection (6);

(z) sections 226 to 229 (joint venture groups, minority owned members and multi-parent groups).