Finance (No. 2) Act 2023

195 Substance based income exclusion U.K.

(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.

[F1 (7A) Section 197A sets out the treatment of operating leases.]

(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.

Textual Amendments

F1 S. 195(7A) inserted (22.2.2024 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)