Part 3Multinational top-up tax
Chapter 4Calculation of adjusted profits of members of a multinational group
Dealing with transparency and entities subject to qualifying dividend regime
171Ultimate parent subject to qualifying dividend regime
1
Where—
a
the ultimate parent of a multinational group that is subject to a qualifying dividend regime distributes a qualifying dividend within 12 months of the end of its accounting period, and
b
on determination of its adjusted profits for the period, it has made a profit,
its adjusted profits for that period are to be reduced (but not below nil) by the amount of that dividend if any one of conditions A to C is met.
2
Condition A is that the qualifying dividend is subject to tax in the hands of the dividend recipient for a taxable period that ends within 12 months of the end of the ultimate parent’s accounting period and—
a
its recipient is subject to tax on the full amount of the dividend at a nominal rate equal to, or in excess of, 15%,
b
it is reasonable to expect that the sum of the adjusted covered taxes payable by the ultimate parent in respect of the profits represented by the dividend and taxes payable by the dividend recipient in respect of the dividend income is at least the amount given by multiplying the amount of that income by 15%, or
c
the ultimate parent is a supply cooperative and the recipient is an individual.
3
For the purposes of subsection (2) patronage dividends made by a supply cooperative are subject to tax to the extent they reduce an expense or cost that is deductible in the computation of the recipient’s taxable income.
4
Condition B is that the recipient of the qualifying dividend is an individual that—
a
is tax resident in the territory of the ultimate parent, and
b
does not hold ownership interests in the ultimate parent held directly, or through entities that are regarded as tax transparent in the territory in which the individual is tax resident, that together entitle the individual to more than 5% of the profits and assets of the ultimate parent.
5
Condition C is that the recipient of the qualifying dividend is located in the territory of the ultimate parent and is—
a
a governmental entity,
b
an international organisation,
c
a non-profit organisation, or
d
a pension fund that is not a pension services entity.
6
Where the underlying profits of the ultimate parent of a multinational group for an accounting period are reduced as a result of subsection (1)—
a
its covered tax balance, excluding any tax in respect of which a deduction for the dividend was allowed, is—
i
in the case of a positive covered tax balance, to be reduced by the same proportion that underlying profits were reduced, or
ii
in the case of a negative covered tax balance, to be increased by that same proportion, and
b
its adjusted profits are to be further reduced by an amount equal to the amount by which its covered tax balance was adjusted under paragraph (a).
7
References in this section to “the recipient” of a qualifying dividend means—
a
the direct recipient of the qualifying dividend, or
b
an entity or individual with ownership interests in the direct recipient if—
i
in the case of an entity, it is located in a territory in which the direct recipient, and every entity through which that ownership interest is held, is regarded as tax transparent, or
ii
in the case of an individual, they are tax resident in a territory in which the direct recipient, and every entity through which that ownership interest is held, is regarded as tax transparent.
8
Where there is more than one recipient of a dividend as a result of paragraph (b) of subsection (7)—
a
this section is to be applied separately in relation to each recipient,
b
where a recipient falls within that paragraph, references to the dividend is to so much of the dividend to which that recipient is entitled to as a result of its ownership interests in the direct recipient.
But a reduction of adjusted profits may not be made more than once in respect of a dividend or a part of it (where more than one individual or entity can be regarded as a recipient of the whole dividend or a part of it).
9
For the purposes of this section and section 172—
“qualifying dividend regime” means a tax regime designed to result in a single level of taxation on the owners of an entity through—
- a
a deduction from the income of the entity for distributions of profits to the owners,
- b
a regime where certain of the profits (“the relevant profits”) of a UK REIT or overseas REIT equivalent are not taxed provided a sufficient proportion of the relevant profits is distributed, or
- c
a regime applicable to a supply cooperative that exempts the cooperative from taxation on profits in connection with its distribution of patronage dividends;
- a
“qualifying dividend” means—
- a
in the case of a qualifying dividend regime falling within paragraph (a) of the definition of qualifying dividend regime, a dividend or other distribution made to an owner of the entity,
- b
in the case of a qualifying dividend regime falling within paragraph (b) of the definition of qualifying dividend regime, a dividend or other distribution which would count towards satisfying the condition that a sufficient proportion of the relevant profits of the UK REIT or overseas REIT equivalent have been distributed (assuming that condition had not already been met), or
- c
in the case of a qualifying dividend regime falling within paragraph (c) of the definition of qualifying dividend regime, a patronage dividend;
- a
“supply cooperative” means a cooperative that acquires goods or services and sells them to its members or patrons;
“cooperative” means an entity that collectively markets or acquires goods or services on behalf of its members and that is subject to a tax regime in the territory in which it is located that is designed to ensure tax neutrality in respect of—
- a
property or services of the members sold through the cooperative, or
- b
property or services acquired by members through the cooperative;
- a
“patronage dividend” means a distribution by a cooperative to its members.