Finance (No. 2) Act 2023

195 Substance based income exclusion

(1) The substance based income exclusion for a period for a territory is calculated by taking the following steps—

• Step 1

  Determine the payroll carve-out amount for that period for each standard member of the group in that territory.

• Step 2

  Determine the tangible asset carve-out amount for that period for each standard member of the group in that territory.

• Step 3

  Add together the amounts determined at steps 1 and 2.

(2) But if the filing member for the group elects not to calculate the substance based income exclusion for the period, the exclusion is nil.

(3) Paragraph 2 of Schedule 15 (annual elections) applies to an election under subsection (2).

(4) The payroll carve-out amount for a member is 5% of the eligible payroll costs incurred by the member in the period.

(5) The tangible asset carve-out amount for a member is 5% of the eligible tangible asset amount of the member in the period.

(6) Section 196 sets out how to calculate the eligible payroll costs of a member.

(7) Section 197 sets out how to calculate the eligible tangible asset amount of a member.

(8) Section 198 sets out special rules on calculating the eligible payroll costs and eligible tangible asset amount of a member that is a permanent establishment or a flow-through entity.