(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.
F1(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F2(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(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.
[F3(7A)Section 197A sets out the treatment of operating leases.]
[F4(8)Section 198 supplements the rules in sections 196 and 197 in relation to a member that is a permanent establishment.
(9)Section 198ZA supplements the rules in sections 196 and 197 in relation to a member that is a flow-through entity.]
Textual Amendments
F1S. 195(2) omitted (in relation to accounting periods commencing on or after 31.12.2023) by virtue of Finance Act 2025 (c. 8), Sch. 4 paras. 48(1), 72(1)(c)
F2S. 195(3) omitted (in relation to accounting periods commencing on or after 31.12.2023) by virtue of Finance Act 2025 (c. 8), Sch. 4 paras. 48(1), 72(1)(c)
F3S. 195(7A) inserted (with effect for accounting periods beginning on or after 31.12.2023 in accordance with Sch. 12 para. 1(2) of the amending Act) by Finance Act 2024 (c. 3), Sch. 12 para. 25(1)
F4S. 195(8)(9) substituted for s. 195(8) (with effect in accordance with Sch. 4 para. 72(4) of the amending Act) by Finance Act 2025 (c. 8), Sch. 4 paras. 32, 72(4)