(1)This section applies where a member of a multinational group (“M”) is a flow-through entity.
(2)An entity is a flow-through entity if—
(a)it is regarded as tax transparent in the territory in which it is created, and
(b)it is not subject to a covered tax on its profits in another territory [F2as a result of being tax resident in that territory].
[F3(2A)Subject to subsection (2C), a member of the group is a “reference entity” in relation to M if that member—
(a)is a non-FTE entity, and
(b)holds an ownership interest in M which is not held through a non-FTE entity.
(2B)In subsection (2A) “non-FTE entity” means an entity that is not a flow-through entity.
(2C)If no member of the group is a reference entity in relation to M by virtue of subsection (2A), the ultimate parent of the group is a “reference entity” in relation to M.]
(3)A proportion of the underlying profits of M is to be allocated to [F4any member of the group (“R”)—
(a)which is a reference entity in relation to M, and
(b)in relation to which condition A or B is met.]
(4)The proportion to be allocated to [F5R] is equal to the [F6percentage] ownership interest [F5R] has in M in relation to which condition A or B is met F7....
[F8(5)Condition A is met if—
(a)R’s ownership interest in M is direct,
(b)R’s ownership interest in M is a flow-through ownership interest, and
(c)M is regarded as tax transparent in the territory in which R is located.
(6)Condition B is met if—
(a)R’s ownership interest in M is indirect,
(b)R’s ownership interest in M is a flow-through ownership interest,
(c)M and each entity through which the ownership interest is held are regarded as tax transparent in the territory in which R is located, and
(d)no entity through which R holds the ownership interest is a reference entity in relation to M.]
F9(7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8)Where underlying profits of M are allocated to a member of the group of which M is a member, those profits are to be included in the member’s adjusted profits and excluded from the adjusted profits of M.
[F10(9)Where every ownership interest in M held by a member of the group is a flow-through ownership interest, and an individual or entity (“the investor”) that is not a member of the group has an ownership interest in M which is held—
(a)directly, or
(b)through a direct ownership interest in an entity in which a member of the group which is a reference entity in relation to M has an ownership interest,
a proportion of M’s underlying profits, equal to the percentage ownership interest the investor has in M, is to be excluded from the adjusted profits of M.
(9A)Where M is the main entity in relation to a permanent establishment falling within paragraph (a), (b) or (c) of section 232(2), any reduction of M’s underlying profits by virtue of subsection (9) is to be applied before any attribution of M’s underlying profits to a permanent establishment in accordance with section 159.]
(10)Any amount of M’s underlying profits not allocated to an entity F11... in accordance with this section is to be included in the adjusted profits of M.
[F12(10A)For the purposes of subsections (5), (6) and (9), an ownership interest in M held by a member of the group is a flow-through ownership interest if (and so far as)—
(a)M is regarded, otherwise than by virtue of section 169(2), as tax transparent in the territory in which M was created,
(b)the interest is held directly and M is treated by virtue of section 169(2) as being regarded as tax transparent to the extent of the interest, or
(c)the interest is derived from a direct ownership interest in M to which paragraph (b) applies.]
F13(11). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F14(12). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Textual Amendments
F1Words in s. 168 heading omitted (with effect in accordance with Sch. 4 para. 72(4) of the amending Act) by virtue of Finance Act 2025 (c. 8), Sch. 4 paras. 13(2), 72(4)
F2Words in s. 168(2)(b) 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. 14(2)
F3S. 168(2A)-(2C) inserted (with effect in accordance with Sch. 4 para. 72(4) of the amending Act) by Finance Act 2025 (c. 8), Sch. 4 paras. 13(3), 72(4)
F4Words in s. 168(3) substituted (with effect in accordance with Sch. 4 para. 72(4) of the amending Act) by Finance Act 2025 (c. 8), Sch. 4 paras. 13(4), 72(4)
F5Word in s. 168(4) substituted (with effect in accordance with Sch. 4 para. 72(4) of the amending Act) by Finance Act 2025 (c. 8), Sch. 4 paras. 13(5)(a), 72(4)
F6Word in s. 168(4) substituted (with effect in accordance with Sch. 4 para. 72(4) of the amending Act) by Finance Act 2025 (c. 8), Sch. 4 paras. 13(5)(b), 72(4)
F7Words in s. 168(4) omitted (with effect in accordance with Sch. 4 para. 72(4) of the amending Act) by virtue of Finance Act 2025 (c. 8), Sch. 4 paras. 13(5)(c), 72(4)
F8S. 168(5)(6) substituted (with effect in accordance with Sch. 4 para. 72(4) of the amending Act) by Finance Act 2025 (c. 8), Sch. 4 paras. 13(6), 72(4)
F9S. 168(7) omitted (with effect in accordance with Sch. 4 para. 72(4) of the amending Act) by virtue of Finance Act 2025 (c. 8), Sch. 4 paras. 13(7), 72(4)
F10S. 168(9)(9A) substituted for s. 168(9) (with effect in accordance with Sch. 4 para. 72(4) of the amending Act) by Finance Act 2025 (c. 8), Sch. 4 paras. 13(8), 72(4)
F11Words in s. 168(10) omitted (with effect in accordance with Sch. 4 para. 72(4) of the amending Act) by virtue of Finance Act 2025 (c. 8), Sch. 4 paras. 13(9), 72(4)
F12S. 168(10A) inserted (with effect in accordance with Sch. 4 para. 72(4) of the amending Act) by Finance Act 2025 (c. 8), Sch. 4 paras. 13(10), 72(4)
F13S. 168(11) omitted (with effect in accordance with Sch. 4 para. 72(4) of the amending Act) by virtue of Finance Act 2025 (c. 8), Sch. 4 paras. 13(11), 72(4)
F14S. 168(12) omitted (with effect in accordance with Sch. 4 para. 72(4) of the amending Act) by virtue of Finance Act 2025 (c. 8), Sch. 4 paras. 13(11), 72(4)