Finance (No. 2) Act 2023 (c. 30)

Part 3 U.K. Multinational top-up tax

[F1 Chapter 9A U.K. Untaxed amounts

Textual Amendments

F1 Pt. 3 Ch. 9A inserted (in relation to accounting periods commencing on or after 31.12.2024) by Finance Act 2025 (c. 8), Sch. 4 paras. 5, 10

Introduction U.K.

229A Meaning of potentially undertaxed U.K.

(1) The top-up amount and additional top-up amounts of a member (“M”) of a multinational group for an accounting period are “potentially undertaxed” if—

(a) M is the ultimate parent or is located in the same territory as the ultimate parent, or

(b) the ultimate parent is not a responsible member.

(2) Subsection (1) does not apply if—

(a) the ultimate parent is not a responsible member,

(b) none of the ownership interests of the ultimate parent in M are direct ownership interests, and

(c) every indirect ownership interest the ultimate parent has in M is derived from an ownership interest the ultimate parent has in a responsible member.

(3) Subsection (1) also does not apply if—

(a) the ultimate parent is located in a territory in which a DIIR is in force and is a responsible member, and

(b) M is located in the same territory as the ultimate parent.

(4) This section and section 229B do not apply to members of a joint venture group (but see section 229I for alternative provision).

229B Untaxed amounts U.K.

(1) A member of a multinational group has an untaxed amount if conditions A and B are met.

(2) Condition A is that the top-up amount and additional top-up amounts of the member are potentially undertaxed.

(3) Condition B is that the sum of amounts attributed under Chapter 7 to responsible members in respect of the member’s top-up amount and additional top-up amounts is less than the sum of the member’s top-up amount and additional top-up amounts.

(4) The untaxed amount is the amount given by subtracting—

(a) the sum of amounts attributed under Chapter 7 to responsible members in respect of the member’s top-up amount and additional top-up amounts, from

(b) the sum of the member’s top-up amount and additional top-up amounts.

Allocation of untaxed amounts U.K.

229C Allocation of untaxed amount to members U.K.

(1) An untaxed amount of a member of a multinational group is to be allocated to qualifying members of the group located in the United Kingdom by—

(a) first, determining the amount (“the UK proportion”) of the untaxed amount to be allocated to the group in the United Kingdom in accordance with section 229D, and

(b) then, allocating an amount of the UK proportion to each qualifying member located in the United Kingdom in accordance with section 229E.

(2) But no allocation is to be made under subsection (1) if in section 229D(1) the results of both Step 2 and Step 5 are nil.

(3) For the purposes of this Chapter, a member of a multinational group is qualifying unless it is—

(a) an investment entity, or

(b) a member of a joint venture group.

229D Amount allocated to the United Kingdom U.K.

(1) Take the following steps to determine the UK proportion of an untaxed amount of a member of a multinational group—

• Step 1

  Determine the number of employees of qualifying members of the group located in the United Kingdom for the accounting period to which the untaxed amount relates (“the relevant period”).

• Step 2

  Determine the total number of employees in the relevant period of qualifying members of the group located in territories (including the United Kingdom) in which a qualifying undertaxed profits tax applies to the untaxed amount.

• Step 3

  Divide the result of Step 1 by the result of Step 2.

• Step 4

  Determine the value of tangible fixed assets of the qualifying members of the group located in the United Kingdom for the relevant period.

• Step 5

  Determine the value of tangible fixed assets of the qualifying members of the group located in territories (including the United Kingdom) in which a qualifying undertaxed profits tax applies to the untaxed amount.

• Step 6

  Divide the result of Step 4 by the result of Step 5.

• Step 7

  Add together the results of Step 3 and Step 6 and divide that sum by 2.

• Step 8

  The UK proportion of the untaxed amount is—

  (a)

  if the nil asset value condition is met, the untaxed amount multiplied by the result of Step 3;

  (b)

  if the nil employee condition is met, the untaxed amount multiplied by the result of Step 6;

  (c)

  in any other case, the untaxed amount multiplied by the result of Step 7.

(2) For the purposes of subsection (1)—

(a) the “nil asset value condition” is met if—

(i) the result of Step 5 is nil, but

(ii) the result of Step 2 is not nil;

(b) the “nil employee condition” is met if—

(i) the result of Step 2 is nil, but

(ii) the result of Step 5 is not nil.

(3) A qualifying undertaxed profits tax applies in a territory in relation to an untaxed amount if—

(a) a qualifying undertaxed profits tax is in force in that territory for the relevant period, and

(b) the provisions of that tax result in a proportion of the untaxed amount (however described for the purposes of that tax) that is greater than nil being allocated to the territory.

(4) See sections 229G and 229H for how to determine the number of employees and the value of tangible fixed assets of a qualifying member of a multinational group.

229E Allocation to qualifying members U.K.

(1) Take the following steps to determine how much of an untaxed amount is to be allocated to each qualifying member located in the United Kingdom—

• Step 1

  Determine the number of employees of the member in the accounting period (“the relevant period”) to which the untaxed amount relates.

• Step 2

  Determine the total number of employees for the relevant period of qualifying members of the group located in the United Kingdom.

• Step 3

  Divide the result of Step 1 by the result of Step 2.

• Step 4

  Determine the value of tangible fixed assets of the member for the relevant period.

• Step 5

  Determine the value of tangible fixed assets for the relevant period of the qualifying members of the group located in the United Kingdom.

• Step 6

  Divide the result of Step 4 by the result of Step 5.

• Step 7

  Add together the results of Step 3 and Step 6 and divide that sum by 2.

• Step 8

  The untaxed amount to be allocated to the member is—

  (a)

  if the nil asset value condition is met, the UK proportion multiplied by the result of Step 3;

  (b)

  if the nil employee condition is met, the UK proportion multiplied by the result of Step 6;

  (c)

  in any other case, the UK proportion multiplied by the result of Step 7.

(2) For the purposes of subsection (1)—

(a) the “nil asset value condition” is met if—

(i) the result of Step 5 is nil, but

(ii) the result of Step 2 is not nil;

(b) the “nil employee condition” is met if—

(i) the result of Step 2 is nil, but

(ii) the result of Step 5 is not nil.

(3) This section is subject to section 229F.

229F Election to make one member of a group liable for untaxed amounts U.K.

(1) The filing member of the group may elect for an accounting period that—

(a) section 229E does not apply, and

(b) instead, a member of the group specified in the election is to be allocated the whole of the UK proportion of each untaxed amount that would be otherwise be allocated between the qualifying members of the group located in the United Kingdom.

(2) A member of the group may only be specified in the election if—

(a) the member is located in the United Kingdom, and

(b) the member has consented to the election.

(3) Paragraph 2 of Schedule 15 (annual elections) applies to an election under this section, and has effect for that purpose as if references to an information return or overseas return notification were to a self-assessment return or below-threshold notification.

How to determine number of employees and tangible fixed assets values U.K.

229G Number of employees U.K.

(1) For the purposes of this Chapter, the number of employees of a qualifying member of a multinational group in an accounting period is the full-time equivalent employee number for that member for that period.

(2) To determine the full-time equivalent employee number for a member of a multinational group for an accounting period take the following steps—

• Step 1

  Determine the number of full-time employees of that member that were full-time employees for the whole of that period.

• Step 2

  Determine, for each employee of that member for that period who is not a full-time employee for the whole of that period (whether they were part-time employees or were not employed for the whole of the period), such fraction as is just and reasonable.

• Step 3

  Add together the number determined under Step 1 and the fractions determined under Step 2.

  If the member was a member of the group throughout the whole of the period, the result of this Step is the full-time equivalent employee number.

• Step 4

  Where the member was not a member of the group for the whole period, make such adjustments to the result of Step 3 as is just and reasonable to arrive at a full-time equivalent employee number that reflects the number of employees of the member in the period for which it was a member of the group.

  For the purpose of this Step, ignore section 208(2) (members joining or leaving group in an accounting period treated as members for the whole of the period).

(3) For the purposes of this section “employee”, in relation to a member of a multinational group, means a person whose employment costs are met by that member (whether or not the person’s activities are carried on in the territory of the member) as recorded in appropriate financial statements of the member and who—

(a) is regarded as an employee under the law of the territory in which the member is located, or

(b) participates in the ordinary operating activities of the member of the group (including on a part-time basis).

(4) For the purposes of subsection (3) financial statements are “appropriate” only if the basis on which they are prepared is consistent for all members of the group (wherever located).

(5) For the purposes of section 229D (but not for the purposes of section 229E), where a member of a multinational group is a flow-through entity, employees of the entity—

(a) are to be treated as employees of members of the group that are not flow-through entities that are located in the territory in which the flow-through entity was created, or

(b) where there are no such members in that territory, are ignored for the purposes of this Chapter.

(6) Subsection (5) does not apply to employees of a flow-through entity that are regarded for the purposes of this section as employees of a permanent establishment of the entity.

(7) Where a permanent establishment does not prepare separate financial accounts, the reference in subsection (3) to employment costs recorded in financial statements is to the employment costs that would have been so recorded had such statements been prepared (and those costs are to be excluded from the financial statements of the main entity for the purposes of applying this section).

229H Value of tangible fixed assets U.K.

(1) To determine the value of tangible fixed assets of a qualifying member of a multinational group for an accounting period—

(a) add together—

(i) the sum of the values of each tangible fixed asset held by the member at the start of the period, as those values are recorded in the member’s financial statements, and

(ii) the sum of the values of each tangible fixed asset held by the member at the end of the period, as those values are recorded in the member’s financial statements, and

(b) divide the result of paragraph (a) by 2.

(2) For the purposes of subsection (1) financial statements are “appropriate” only if the basis on which they are prepared is consistent for all members of the group (wherever located).

(3) In each case the value of a tangible fixed asset is to include accumulated depreciation, depletion or impairment.

(4) If the member is not a member of the group at the start of the period, or at the end of the period, the sum of the values of its tangible fixed assets at that time is to be treated as nil.

(5) For the purpose of subsection (4), ignore section 208(2) (members joining or leaving group in an accounting period treated as members for the whole of the period).

(6) Where a permanent establishment does not prepare separate financial accounts, the values to be used are those that would have been recorded in those accounts had they been prepared (and those values are to be excluded from the financial statements of the main entity for the purposes of applying this section).

(7) For the purposes of section 229D (but not for the purposes of section 229E), tangible fixed assets held by a member of the group that is a flow-through entity—

(a) are to be treated as held by members of the group that are not flow-through entities that are located in the territory in which the flow-through entity was created, or

(b) where there are no such members in that territory, are to be ignored for the purposes of this Chapter.

(8) Subsection (7) does not apply to assets of a flow-through entity that are held by a permanent establishment of the entity.

(9) For the purposes of this Chapter “tangible fixed assets” means all tangible assets wherever located, other than cash or cash equivalents or financial assets.

Joint ventures U.K.

229I Joint ventures U.K.

(1) This section applies where—

(a) the ultimate parent of a multinational group is not subject to Pillar Two IIR tax for an accounting period,

(b) the group includes a joint venture group, and

(c) the members of the joint venture group are undertaxed in relation to the multinational group for that period.

(2) The members of a joint venture group are undertaxed in relation to a multinational group if—

(a) the sum of amounts attributed to responsible members of the multinational group under Chapter 7 in respect of members of the joint venture group’s top-up amount and additional top-up amounts, is less than

(b) the sum of such amounts in respect of the joint venture group that would be attributed under that Chapter to the ultimate parent of the multinational group if it were subject to Pillar Two IIR tax.

(3) The amount given by subtracting the amounts mentioned in paragraph (a) of subsection (2) from the amounts mentioned in paragraph (b) of that subsection is an untaxed amount of the joint venture group in relation to the multinational group.

(4) Sections 229C to 229F (allocation of untaxed amounts) apply for the purposes of allocating an untaxed amount of a joint venture group in relation to a multinational group to qualifying members of that multinational group as they apply to the allocation of an untaxed amount of a member of the multinational group to those members.

References to responsible members U.K.

229J References to responsible members U.K.

(1) For the purpose of determining untaxed amounts of a member of a multinational group who is located in a territory in which a DIIR is in force, references in this Chapter to a responsible member are to be interpreted as if section 128 (responsible members) had effect with the following modifications—

(a) in subsection (2) omit “that are not located in the territory the ultimate parent is located in”;

(b) in subsection (3)(c), at the beginning insert “the intermediate parent,”;

(c) in subsection (4) omit “that are not located in the territory it is located in”;

(d) in subsection (5)(b), at the beginning insert “it or”;

(e) in subsection (6) omit “that are not located in the same territory it is located in”;

but this is subject to subsection (2).

(2) For the purpose of determining whether the top-up amount and additional top-up amounts of a member (“M”) of a multinational group for an accounting period are “potentially undertaxed”, a member of the group which—

(a) is located in the same territory as M, and

(b) would apart from this subsection be a responsible member,

is to be regarded for all purposes of this Chapter as not being a responsible member unless a DIIR is in force for the accounting period in that territory.

(3) In this section “DIIR” means a tax which—

(a) implements, in a Pillar Two territory, rules relating to top-up tax under the IIR (within the meaning of the Pillar Two rules), and

(b) is designed so that tax charged under it is not limited to tax in respect of members who are located outside that territory.]