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

Part 3 U.K. Multinational top-up tax

Chapter 10 U.K. Definitions etc

Miscellaneous U.K.

252 Application to sovereign wealth funds U.K.

(1) A sovereign wealth fund that would, ignoring this subsection, be the ultimate parent of a multinational group is not to be regarded as the ultimate parent of that group and is to be ignored for the purposes of this Part.

(2) Accordingly, an entity (“A”) in which such a sovereign wealth fund has a controlling interest as a result of direct ownership interests is to be regarded as the ultimate parent of a consolidated group consisting of—

(a) itself, and

(b) the entities that A has a controlling interest in.

(3) For the purposes of this section “sovereign wealth fund” means an entity which is a [F1 governmental] entity for the purposes of this Part as a result of meeting the condition in section 234(1)(b)(ii).

Textual Amendments

F1 Word in s. 252(3) substituted (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. 56(9)

253 Disqualified and qualified refundable imputation taxes U.K.

(1) An amount of tax payable by a member of a multinational group is “disqualified refundable imputation tax” if—

(a) it is—

(i) [F2 as a result of a dividend made by the member,] refundable to the beneficial owner of the dividend,

(ii) creditable by the beneficial owner of such a dividend against a tax liability other than a tax liability in respect of that dividend, or

(iii) refundable to an entity upon the distribution of a dividend, and

(b) it is not qualified refundable imputation tax.

(2) An amount of tax payable by a member of a multinational group is “qualified refundable imputation tax” to the extent—

(a) it is refundable or creditable to the beneficial owner of a dividend distributed by—

(i) the member, or

(ii) where the member is a permanent establishment, the main entity, and

(b) the refund is payable, or the credit is provided—

(i) under a foreign tax credit regime by a territory other than the territory that imposed the tax on the member,

(ii) to a beneficial owner of the dividend subject to tax in the territory imposing the tax payable by the member, provided the nominal rate of that tax that is at least 15%,

(iii) to a beneficial owner of the dividend who is an individual who is tax resident in that territory and who is subject to tax on the dividends as ordinary income,

(iv) to a governmental entity or an international organisation,

(v) to a resident non-profit organisation [F3 or a resident pension fund] F4 ...

[F5 (va) a resident investment entity that is not a member of the group, or]

(vi) to a resident life insurance company to the extent the dividends are received in connection with a pension fund business and subject to tax in a similar manner as a dividend received by a pension fund.

(3) For the purposes of sub-paragraphs (v) and (vi) of subsection (2)(b), an entity is a resident entity if it is resident in the territory that imposed the tax, and for those purposes—

(a) a non-profit organisation or pension fund is resident in a territory if it is created and managed in that territory;

(b) an investment entity is resident in a territory if it is created and regulated in that territory;

(c) a life insurance company is resident in a territory if it is located there (see section 239).

Textual Amendments

F2 Words in s. 253(1)(a)(i) substituted (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. 56(10)(a)(b)

F3 Words in s. 253(2)(b)(v) substituted (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. 56(10)(c)(i)

F4 Word in s. 253(2)(b) omitted (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 virtue of Finance Act 2024 (c. 3), Sch. 12 para. 56(10)(c)(ii)

F5 S. 253(2)(b)(va) 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. 56(10)(c)(iii)

[F6 254 Use of currency U.K.

(1) Calculations under this Part in relation to a multinational group, or any member of such a group, are to be carried out in the currency of the consolidated financial statements of the ultimate parent (“the CFS currency”).

(2) Where it is necessary to convert an amount into the CFS currency, that conversion is to be made in accordance with the authorised accounting standard—

(a) that was used in preparing the consolidated financial statements of the ultimate parent, or

(b) where no such statements were prepared, that is used as the basis for the statements that would have been prepared.

(3) For the purpose of comparing an amount to a figure expressed in this Part in euros, the amount is to be converted to euros for that purpose (from the CFS currency) by reference to the average exchange rate for the month of December that preceded the beginning of the accounting period to which the amount relates.

(4) Where the European Central Bank publishes exchange rates for the CFS currency, use those rates for the purposes of the conversion under subsection (3) and any conversion under step 4 in section 123 (amount charged by reference to top-up amounts).

(5) Otherwise—

(a) where the Bank of England publishes exchange rates for the CFS currency, use those rates for the purposes of that conversion, or

(b) where the Bank of England does not publish exchange rates for that currency, use such a rate as appears, on a just and reasonable basis, to reflect the average exchange rate for the period in question.]

Textual Amendments

F6 S. 254 substituted (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. 33(1)

255 Pillar Two rules U.K.

(1) In this Part references to the “Pillar Two rules” are to the Pillar Two model rules as interpreted in accordance with, and supplemented by—

(a) the Pillar Two commentary, and

(b) any further commentaries or guidance published from time to time by the OECD that are relevant to the implementation of the Pillar Two model rules.

(2) In subsection (1)—

• “Pillar Two model rules” means the model rules published by the Organisation for Economic Co-operation and Development as “Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two): Inclusive Framework on BEPS”;

• “Pillar Two commentary” means the following—

  (a)

  the commentary on the Pillar Two model rules published by the Organisation for Economic Co-operation and Development as “Tax Challenges Arising from the Digitalisation of the Economy – Commentary to the Global Anti-Base Erosion Model Rules (Pillar Two)”, and

  (b)

  the examples illustrating the application of the Pillar Two model rules published by the Organisation for Economic Co-operation and Development as “Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two) Examples”.

[F7 (2A) Pillar Two rules apply to a member of a multinational group (“the relevant member”) in an accounting period if conditions A, B and C are met.]

(3) [F8 Condition A is met if—]

(a) the group is a qualifying multinational group [F9 for the accounting period], or

(b) the group would be a qualifying multinational group [F10 for the accounting period] but is not only as a result of Condition B in section 129(3) (requirement that at least one member located in the United Kingdom).

[F11 (4) Condition B is that—

(a) the ultimate parent is subject to Pillar Two IIR tax for the accounting period and is not located in the same territory as the relevant member,

(b) an intermediate parent member of the group is subject to Pillar Two IIR tax for the accounting period, is not located in the same territory as the relevant member and has an ownership interest in—

(i) the relevant member, or

(ii) a member of the group located in the same territory as the relevant member, or

(c) any member of the group is located in a territory in which a qualifying undertaxed profits tax is in force for the accounting period.

(5) Condition C is that no transitional safe harbour election applies to the relevant member for that period.

(6) For the purposes of this Part “transitional safe harbour election” means—

(a) an election under paragraph 3(1) (transitional safe harbour), or

(b) an election corresponding to that election for the purposes of a tax imposed by a Pillar Two territory that is equivalent to multinational top-up tax so far as it relates to top-up tax under the IIR (within the meaning of the Pillar Two rules).]

Textual Amendments

F7 S. 255(2A) 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. 34(1)(a)

F8 Words in s. 255(3) substituted (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. 34(1)(b)(i)

F9 Words in s. 255(3)(a) 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. 34(1)(b)(ii)

F10 Words in s. 255(3)(b) 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. 34(1)(b)(iii)

F11 S. 255(4)-(6) 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. 34(1)(c)

256 Qualifying domestic top-up tax U.K.

(1) For the purposes of this Part a tax is a “qualifying domestic top-up tax” if it is—

(a) domestic top-up tax (see Part 4), or

(b) specified in a regulations made by the Treasury.

(2) A tax may only be specified in regulations if the Treasury consider that it is equivalent in substance to domestic top-up tax (see Part 4).

(3) A tax may be considered equivalent to domestic top-up tax despite being not being calculated in accordance with the financial accounting standard used in the consolidated financial statements of the ultimate parent if calculated in accordance with an authorised accounting standard that is either—

(a) an acceptable accounting standard, or

(b) another financial accounting standard that is adjusted to prevent material competitive distortions.

(4) Regulations under this section may provide that the specification of a tax is to have effect from a time before the regulations are made (but may not provide that the specification of a tax previously specified ceases to have effect before the regulations are made).

[F12 256A Qualifying domestic top-up tax treated as not accruing where contested etc U.K.

(1) Subsection (2) applies for the purposes of sections 194(2) to (7), 203(3) to (7) and 206(4) to (8) (application of QDT credits in determination of top-up amounts).

(2) An amount of qualifying domestic tax accruing to a member of a multinational group is to be treated as not accruing to the member where the enforceability of the amount is in question.

(3) For the purposes of this section, the enforceability of an amount of qualifying domestic top-up tax accruing to a member of a multinational group is in question if—

(a) the member disputes its enforceability on any of the grounds set out in subsection (4), or

(b) the tax authority of the territory in which the qualifying domestic top-up tax is imposed considers the amount unenforceable on the basis of any of those grounds.

(4) Those grounds are that—

(a) the amount is unenforceable on constitutional grounds or as a result of other superior law applying in the territory in which the qualifying domestic top-up tax is imposed, or

(b) the amount is unenforceable as a result of a specific agreement with the government of that territory as to the tax liability of the member or the group.

(5) Subsection (2) ceases to apply where the enforceability of an amount of qualifying domestic top-up tax ceases to be in question.

(6) Where the enforceability of an amount of qualifying domestic top-up tax was in question, it ceases to be in question where—

(a) the amount has been paid, and

(b) the enforceability of the amount may no longer be disputed as a result of—

(i) a settlement,

(ii) the time for any appeal having passed and there being no reasonable prospect of the time being extended, or

(iii) the exhaustion of any rights to appeal.]

Textual Amendments

F12 S. 256A 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. 35(1)

257 Qualifying undertaxed profits tax U.K.

(1) For the purposes of this Part a tax is a “qualifying undertaxed profits tax” if it is specified in regulations made by the Treasury.

(2) A tax may only be specified in regulations if the Treasury consider that the tax is an appropriate means of implementing the UTPR (within the meaning of the Pillar Two rules).

(3) Regulations under this section may provide that the specification of a tax is to have effect from a time before the regulations are made (but may not provide that the specification of a tax previously specified ceases to have effect before the regulations are made).

258 Meaning of “connected” U.K.

For the purposes of this Part, a person or entity is “connected” with an entity if they are “closely related” within the meaning of Article 5(8) of the OECD tax model.

259 Other definitions U.K.

(1) In this Part—

• “company” means a body corporate;

• [F13 “deemed distribution” has the meaning given by section 215(4)(c);]

• “for accounting purposes” means for the purposes of accounts drawn up in accordance with acceptable accounting standards;

• “held for sale” has the meaning given by international accounting standards;

• “HMRC” means His Majesty’s Revenue and Customs;

• “international financial reporting standards” or “international accounting standards” means those standards as issued or adopted, from time to time, by the International Accounting Standards Board;

• “OECD tax model” means the Model Tax Convention on Income and on Capital published (from time to time) by the Organisation for Economic Co-operation and Development;

• “overseas REIT equivalent” means an entity resident in a territory outside the United Kingdom that is the equivalent of a UK REIT;

• [F14 “partnership” does not include anything that is a body corporate;]

• “tax treaty” means an [F15 international agreement for, or provision of an international agreement concerned with,] the avoidance of double taxation with respect to taxes on income and on capital;

• “UK REIT” means—

  (a)

  a company UK REIT within the meaning of Part 12 of CTA 2010 (see section 524 of that Act), or

  (b)

  a company that is a member of a group UK REIT within the meaning of that Part (see sections 523 and 606 of that Act);

• an “uncertain tax position”, in relation to an amount of covered taxes, exists where the amount as reflected in the underlying profits accounts is different to how it is, or will be, reflected in a tax return because of uncertainty over whether the tax authority in question will accept the basis on which it is reflected in that return.

(2) For the purposes of this Part, an individual is “tax resident” in a territory if—

(a) in the case of the United Kingdom, the individual is resident for income tax purposes, and

(b) in any other territory, the individual is resident for the purposes of a tax on income imposed under the law of that territory.

(3) Where a term in this Part has a meaning for accounting purposes, unless the context otherwise requires, it has that meaning in this Part.

(4) Examples of such terms include—

• carrying value;

• current tax;

• deferred tax;

• deferred tax expense;

• deferred tax asset;

• deferred tax liability;

• fair value;

• impairment;

• tax expense.

Textual Amendments

F13 Words in s. 259(1) 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. 56(11)(a)

F14 Words in s. 259(1) 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. 2(3)

F15 Words in s. 259(1) substituted (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. 56(11)(b)