Finance Act 2025

Flow-through entities U.K.

13 (1) Section 168 (underlying profits of transparent and reverse hybrid entities) is amended as follows.

(2) In the heading omit “and reverse hybrid”.

(3) After subsection (2) insert—

“(2A) Subject to subsection (2C), a member of the group is a “reference entity” in relation to M if that member—

(a) is a non-FTE entity, and

(b) holds an ownership interest in M which is not held through a non-FTE entity.

(2B) In subsection (2A) “non-FTE entity” means an entity that is not a flow-through entity.

(2C) If no member of the group is a reference entity in relation to M by virtue of subsection (2A), the ultimate parent of the group is a “reference entity” in relation to M.”

(4) In subsection (3) for the words from “each” to the end substitute “any member of the group (“R”)—

“(a) which is a reference entity in relation to M, and

(b) in relation to which condition A or B is met.”

(5) In subsection (4)—

(a) in each place, for “O” substitute “R”;

(b) for “proportional” substitute “percentage”;

(c) omit “(subject to subsection (7))”.

(6) For subsections (5) and (6) substitute—

“(5) Condition A is met if—

(a) R’s ownership interest in M is direct,

(b) R’s ownership interest in M is a flow-through ownership interest, and

(c) M is regarded as tax transparent in the territory in which R is located.

(6) Condition B is met if—

(a) R’s ownership interest in M is indirect,

(b) R’s ownership interest in M is a flow-through ownership interest,

(c) M and each entity through which the ownership interest is held are regarded as tax transparent in the territory in which R is located, and

(d) no entity through which R holds the ownership interest is a reference entity in relation to M.”

(7) Omit subsection (7).

(8) For subsection (9) substitute—

“(9) Where every ownership interest in M held by a member of the group is a flow-through ownership interest, and an individual or entity (“the investor”) that is not a member of the group has an ownership interest in M which is held—

(a) directly, or

(b) through a direct ownership interest in an entity in which a member of the group which is a reference entity in relation to M has an ownership interest,

a proportion of M’s underlying profits, equal to the percentage ownership interest the investor has in M, is to be excluded from the adjusted profits of M.

(9A) Where M is the main entity in relation to a permanent establishment falling within paragraph (a), (b) or (c) of section 232(2), any reduction of M’s underlying profits by virtue of subsection (9) is to be applied before any attribution of M’s underlying profits to a permanent establishment in accordance with section 159.”

(9) In subsection (10) omit “or an individual”.

(10) After subsection (10) insert—

“(10A) For the purposes of subsections (5), (6) and (9), an ownership interest in M held by a member of the group is a flow-through ownership interest if (and so far as)—

(a) M is regarded, otherwise than by virtue of section 169(2), as tax transparent in the territory in which M was created,

(b) the interest is held directly and M is treated by virtue of section 169(2) as being regarded as tax transparent to the extent of the interest, or

(c) the interest is derived from a direct ownership interest in M to which paragraph (b) applies.”

(11) Omit subsections (11) and (12).