Finance (No. 2) Act 2023

Chapter 7 Allocating top-up amounts to responsible members

200 Top-up amounts multiplied by inclusion ratio

(1) The amount of a top-up amount of a member of a multinational group that is attributed to a responsible member (see section 128) is found by multiplying the top-up amount by the responsible member’s inclusion ratio for the member whose top-up amount it is.

(2) Where the responsible member’s (“the first responsible member”) interest in the member is through another responsible member, the first responsible member’s top-up amount is to be reduced (but not below nil) by the amount attributed under this section to that other responsible member.

201 Inclusion ratio

(1) A responsible member’s inclusion ratio for a member with a top-up amount (“the relevant member”) is found as follows—

• Step 1

  Determine the adjusted profits of the relevant member with the top-up amount (in accordance with Chapter 4).

• Step 2

  Determine how much of those profits are attributable to ownership interests held by entities other than the responsible member.

• Step 3

  Subtract the amount determined under Step 2 from the amount determined under Step 1.

• Step 4

  The inclusion ratio is given by dividing the amount determined under Step 3 by the amount determined under Step 1.

(2) The amount of profits of the relevant member attributable to ownership interests held by entities other than the responsible member is the amount that would, in hypothetical consolidated financial statements prepared by the responsible member (whether or not it actually prepared consolidated financial statements), have been treated in those statements as attributable to such entities under the principles of the authorised accounting standard used, or treated as used (see section 249(1)(d)), in the ultimate parent’s consolidated financial statements.

(3) For the purposes of determining what that amount would be in those hypothetical consolidated financial statements of the responsible member, use the following assumptions—

(a) the relevant member’s profits were its adjusted profits as determined in accordance with Chapter 4;

(b) the responsible member had a controlling interest in the relevant member such that all of its income and expenses were consolidated on a line-by-line basis with those of the responsible member;

(c) all of the profits of the relevant member were attributable to transactions with persons who are not members of the multinational group;

(d) all ownership interests that are not directly or indirectly held by the responsible member were held by persons other than members of the multinational group.

(4) Where the relevant member is a flow-through entity, none of the adjusted profits of the relevant member are to be regarded as attributable to ownership interests held by entities that are not members of the group (and any such entity is to be ignored for the purposes of this section).