Finance (No. 2) Act 2023

Intra-group transfers before entry into regime

2 (1) Sub-paragraph (3) applies where—

(a) assets are transferred from one member of a multinational group to another member of that group,

(b) either—

(i) the Pillar Two rules do not apply to the transferor for the accounting period in which the transfer takes place, or

(ii) an election under paragraph 3(1) (transitional safe harbour) applies in relation to the transferor for that period, and

(c) the transfer took place on or after 1 December 2021.

(2) But sub-paragraph (3) does not apply in relation to a transfer of assets manufactured, or of a class or description sold, in the course of carrying on a trade by the transferor or the transferee.

(3) Where this sub-paragraph applies, for the purposes of Part 3 of this Act—

(a) the value of the assets at the relevant time is the carrying value of the assets in the hands of the transferor immediately before the transfer, and

(b) any deferred tax asset that would arise in relation to the assets in the underlying profits of the transferee is limited to the tax paid amount in relation to the transfer of assets.

(4) For the purposes of this paragraph “the relevant time” means the later of—

(a) the date of the transfer, and

(b) the commencement of the first accounting period in which—

(i) the Pillar Two rules apply to the transferee, and

(ii) an election under paragraph 3(1) (transitional safe harbour) does not apply in relation to the transferee.

(5) Where the relevant time is after the date of the transfer—

(a) the value of the assets at the relevant time is to be adjusted to reflect—

(i) capitalised expenditure incurred in respect of the assets in the period between the date of the transfer and the relevant time, and

(ii) amortisation and depreciation of the assets that, had the transfer not occurred, would have been recognised by the transferor if the transferor had continued to use the accounting policies and rates for amortisation and depreciation of the assets previously used, and

(b) the tax paid amount in relation to the transfer of the assets is to be adjusted to reflect the matters referred to in paragraph (a)(i) and (ii).

(6) To determine the “tax paid amount” in relation to a transfer of assets take the following steps—

• Step 1

  Determine the amount of the tax expense of the transferor in relation to the transfer of the assets that relates to covered taxes.

• Step 2

  Determine the amount, if any, of qualifying current tax expense relating to the transfer of the assets that would have been allocated to the transferor as a result of section 177 or 179 (permanent establishments and controlled foreign company regimes) if—

  (a)

  the Pillar Two rules had applied to the group in the accounting period in which the transfer occurred, and

  (b)

  section 179(2) (restriction of allocation of mobile income) were ignored.

• Step 3

  Add together the amounts determined under Steps 1 and 2.

(7) But the tax paid amount is not to exceed the cap amount.

(8) The “cap amount” in relation to a transfer of assets is the amount given by—

(a) dividing—

(i) the amount of tax expense determined under Step 1 in sub-paragraph (6), by

(ii) the nominal rate of tax to which that expense relates, and

(b) multiplying the result of paragraph (a) by 15%.

(9) Where, ignoring sub-paragraph (7), the tax paid amount in relation to the transfer of assets would exceed the cap amount in relation to it, the filing member may elect that sub-paragraph (3) does not apply in relation to the transfer of assets.

(10) Paragraph 2 of Schedule 15 (annual elections) applies to an election under sub-paragraph (9).

(11) For the purposes of this paragraph, “a transfer of assets” includes a transaction that relates to assets that does not result in a change in their ownership if the transaction has substantially the same economic effect as a change in ownership of those assets.