Finance (No. 2) Act 2023

Chapter 2 Qualifying multinational groups and their members

Multinational groups

126 Meaning of “multinational group” and “ultimate parent”

(1) References in this Part to a multinational group are to a consolidated group where at least one of the members of that group is not located in the same territory as the others.

(2) A “consolidated group” means the following entities (which are its members)—

(a) an entity (the “ultimate parent”)—

(i) in which no other entity has a controlling interest, and

(ii) which has a controlling interest in other entities, and

(b) the entities whose assets, liabilities, income, expenses and cash flows—

(i) are included in the consolidated financial statements of the ultimate parent, or

(ii) are not included in those statements only because of an exclusion on size or materiality grounds or on the grounds that the entity in question is held for sale.

127 Excluded entities

(1) For the purposes of this Part, excluded entities are to be treated as not being members of a multinational group.

(2) But subsection (1) does not apply for the purposes of the following provisions—

(a) section 126 (and accordingly an excluded entity that is the ultimate parent of multinational group remains the ultimate parent of that group),

(b) this section, and

(c) section 129 (determining whether a multinational group is qualifying).

(3) The following are excluded entities—

(a) a governmental entity;

(b) an international organisation;

(c) a pension fund;

(d) a non-profit organisation;

(e) a qualifying non-profit subsidiary;

(f) a qualifying service entity;

(g) a qualifying exempt income entity.

(4) The following are also excluded entities if they are the ultimate parent of a multinational group, or would be but for the fact they do not produce consolidated financial statements that include assets, liabilities, income expenses and cash flows of entities in which they have ownership interests—

(a) an investment fund,

(b) a UK REIT, or

(c) an overseas REIT equivalent.

(5) An entity is a qualifying non-profit subsidiary in an accounting period if—

(a) it is 100% owned by one or more entities that are non-profit organisations,

(b) the revenue (see section 129(5)) of the multinational group of which the entity is a member would not exceed the threshold set out in section 129(4) for that period if the revenue of every member that is a non-profit organisation, a qualifying service entity or a qualifying exempt income entity were ignored,

(c) the revenue of the group for that period that is ignored for the purposes of paragraph (b) is less than 25% of the total revenue of the group, and

(d) no election under subsection (8) is in force in relation to the entity.

(6) An entity is a qualifying service entity if—

(a) it is 95% owned by one or more qualifying excluded entities,

(b) either—

(i) the entity only carries out activities that are ancillary to the activities of those owners, or

(ii) all, or almost all, of its activities, ignoring activities falling within sub-paragraph (i), consist of the holding of assets or the investment of funds for the benefit of those owners, and

(c) no election under subsection (8) is in force in relation to the entity.

(7) An entity is a qualifying exempt income entity if—

(a) it is 85% owned by one or more qualifying excluded entities,

(b) almost all of the entity’s income is excluded dividends or excluded equity gains (or a mixture of both), and

(c) no election under subsection (8) is in force in relation to the entity.

(8) The filing member of a multinational group (see paragraph 2 of Schedule 14) may make an election that a member of that group that would otherwise be an excluded entity as a result of subsection (5), (6) or (7) is not to be an excluded entity.

(9) Schedule 15 makes provision about elections under this Part.

(10) Paragraph 1 of that Schedule (long term elections) applies to an election under subsection (8).

(11) For the purposes of subsection (5), the reference to an entity being 100% owned by one or more entities that are non-profit organisations is to those entities together having that percentage of ownership interest in that entity.

(12) For the purposes of subsections (6) and (7)—

(a) despite section 232(3) (permanent establishments treated as distinct from main entity), the conditions in subsection (6)(b) and (7)(b) are only met in relation to a permanent establishment or a main entity if the conditions are met by the main entity and all of its permanent establishments taken together as if they were a single entity;

(b) an excluded entity is “qualifying” if it is not a pensions service entity, and

(c) references to an entity being 95% or 85% owned by qualifying excluded entities are to those entities together having at least that percentage of the ownership interests in that entity (see section 245 for how to calculate ownership interests in excluded entities).

Responsible members

128 Responsible members

(1) The ultimate parent of a multinational group is a responsible member of that group if it is subject to Pillar Two IIR tax.

(2) An ultimate parent that is a responsible member of a multinational group is responsible for all of its members that are not located in the territory it is located in.

(3) An intermediate parent member of a multinational group (see section 237(2)) that is located in a Pillar Two territory is a responsible member of that group if it is subject to Pillar Two IIR tax and—

(a) no intermediate parent member of that group that is subject to Pillar Two IIR tax has a controlling interest in it,

(b) the ultimate parent is not subject to Pillar Two IIR tax, and

(c) it has an ownership interest in a member of the group that has a top-up amount.

(4) Such an intermediate parent member is responsible for all of the members of the group it has an ownership interest in that are not located in the territory it is located in.

(5) A partially-owned parent member of a multinational group (see section 237(1)) that is located in a Pillar Two territory is a responsible member if it is subject to Pillar Two IIR tax and—

(a) it is not wholly owned by another partially-owned parent member of that group that is subject to Pillar Two IIR tax, and

(b) it has an ownership interest in a member of the group that has a top-up amount.

(6) Such a partially owned parent member is responsible for all of the members of the group it has an ownership interest in that are not located in the same territory it is located in.

(7) For the purposes of this Part an entity is subject to Pillar Two IIR tax if—

(a) the entity is located in the United Kingdom and is not an excluded entity, or

(b) the entity—

(i) is located in another Pillar Two territory in which a tax equivalent to multinational top-up tax is in force, and

(ii) is not excluded from the application of that tax as a result of provision equivalent to section 127.

Qualifying multinational groups

129 Qualifying multinational groups

(1) For the purposes of this Part, a multinational group is “qualifying” in an accounting period if conditions A and B are met.

(2) Condition A is that the group’s members have revenue that exceeds the threshold set out in subsection (4) in at least 2 accounting periods of the previous 4 accounting periods.

(3) Condition B is that at least one of the group’s members is located in the United Kingdom.

(4) The threshold for an accounting period is the amount given by multiplying 750 million euros by the amount given by dividing the number of days in the accounting period by 365.

(5) For the purposes of this section, and section 127(5), the revenue of the members of a multinational group for a period is to be determined by reference to the consolidated financial statements of the ultimate parent for that period.

130 Change in composition of multinational group

(1) This section applies for the purpose of determining whether condition A in section 129(2) is met by a multinational group in an accounting period (“the qualifying period”) where its composition has changed—

(a) in that period, or

(b) during the previous 4 accounting periods (“the testing period”).

(2) Reference in subsection (1) to a change in the composition of a multinational group includes its formation as a result of the acquisition by one entity of ownership interests in another.

(3) Where a member of the multinational group was not a member of any consolidated group in one or more of the accounting periods in the testing period—

(a) its revenues for those accounting periods are to be determined by reference to its financial statements or any consolidated financial statements in which its revenue is included (and, if necessary, apportioned on a just and reasonable basis to those accounting periods), and

(b) those revenues are to be treated as forming part of the revenues of the multinational group in those periods (whether or not the group existed in those periods).

(4) Where a multinational group is the result of a merger of two or more consolidated groups in the qualifying period or the testing period, for each accounting period of those periods in which they were separate groups, add together the revenues of each consolidated group for that period (determined by reference to the consolidated financial statements of the ultimate parent of each group and if necessary, apportioned on a just and reasonable basis to the accounting period of the merged group) to determine whether the threshold in section 129(4) is met for that period.

(5) For the purposes of this section “merger” means any arrangement that results in two or more consolidated groups becoming a single consolidated group.

131 Whether de-merged groups meet the revenue threshold

(1) Where a multinational group is the result of a qualifying de-merger (“a de-merged group”), section 129 has effect in relation to that group for its first accounting period that ends after the de-merger, and in the 3 accounting periods that follow it as if for subsection (2) there were substituted—

“(2) A de-merged group meets condition A if—

(a) in its first accounting period that ends after the de-merger, if its members have revenue for that period that exceeds the threshold set out in section 129(4), and

(b) in any of the second to fourth accounting periods ending after the de-merger, if its members have revenue that exceeds the threshold set out in that section in any two of the following periods—

(i) that period;

(ii) any of the accounting periods that precede that period and end after the de-merger.”

(2) In this section “qualifying de-merger” means the separation of members of a multinational group that meets condition A in section 129(2) into two or more consolidated groups, such that those members cease to all be consolidated by the same ultimate parent.