(1)The underlying profits of a member of a multinational group are to be adjusted so as to exclude any excluded dividends received or accrued by that member.
(2)“Excluded dividends” means—
(a)a dividend or other distribution arising as a result of a qualifying interest in a flow-through entity (see section 168), or
(b)any other dividend or other distribution arising as a result of a qualifying interest in an entity, other than a dividend or other distribution falling within subsection (3).
(3)The following fall within this subsection—
(a)a dividend or other distribution arising as a result of a qualifying interest that is a short-term portfolio holding;
(b)a dividend or other distribution arising as a result of a qualifying interest in an investment entity that is subject to an election under section 214 (taxable distribution method election);
(c)a dividend or other distribution made by a member of a multinational group if—
(i)its recipient is a member of the same group, and
(ii)payments in respect of the distribution (whether or not the distribution was accounted for as a distribution at the time of payment) are treated as an expense of the member that made it for the purposes of determining the member’s underlying profits, or
(d)any other dividend or other distribution to the extent it reflects debt rather than a qualifying interest.
(4)For the purposes of subsection (2) a qualifying interest in an entity held by a member of a multinational group is a portfolio holding if, on the vesting date of the distribution, the members of that group do not, between them, have qualifying interests that entitle them to 10% or more of the entity’s—
(a)profits,
(b)capital,
(c)reserves, and
(d)voting rights.
(5)A portfolio holding held by a member of a multinational group is a short-term portfolio holding if it was held for less than 1 year before the vesting date of the distribution.
(6)The vesting date of a distribution is the earlier of—
(a)the day on which it is made, and
(b)the day on which the person to whom it arises is entitled to have it made.
(7)The filing member of a multinational group may elect that all portfolio holdings held by a member of the group specified in the election are to be treated for the purposes of this section as short-term portfolio holdings.
(8)Paragraph 1 of Schedule 15 (long term elections) applies to an election under subsection (7).
(9)In this section, and in section 142, “qualifying interest” in an entity means—
(a)a direct ownership interest in it, or
(b)an entitlement to exercise voting rights in relation to it.