Finance (No. 2) Act 2023

Covered taxes less than nil U.K.

202 Covered taxes balance less than nil when members in a territory have a profit U.K.

(1) This section applies to the standard members of a multinational group in a territory (“the relevant territory”) in an accounting period (“the current period”) if—

(a) those members do not have a collective loss for the current period, and

(b) the combined covered tax balance for those members for the current period is less than nil (including as a result of this section or section 205 having applied in a previous accounting period).

(2) Where this section applies—

(a) the amount of the combined covered tax balance for the current period is to be added to the combined covered tax balance for the standard members in the relevant territory in the next accounting period in which those members do not have a collective loss (which as the balance for the current period is negative will reduce the combined covered tax balance for that next period), and

(b) the combined covered tax balance for those members for the current period is to be treated as nil (and as a result of Step 5 in section 132(1) their effective tax rate for the current period will be 0%).

(3) For the purposes of this section and sections 203 to 205, the standard members of a multinational group in a territory have a collective loss for a period if the result of Step 2 in section 132(1) is nil or less for those members for that period.

203 Additional top-up amounts where covered taxes less than expected U.K.

(1) This section applies in an accounting period in relation to standard members of a multinational group in a territory where—

(a) those members have a collective loss for that period, and

(b) the combined covered tax balance for those members for the current period is less than nil, and

(c) the collective negative covered tax balance expressed as a positive number is greater than the amount given by multiplying the collective loss expressed as a positive number by 15% (“the expected covered tax amount”).

(2) Where this section applies, those members in that territory collectively have an additional top-up amount (a “collective additional amount”) equal to the difference between the expected covered tax amount and the combined covered tax balance.

(3) Where those members have a QDT credit for the accounting period, the collective additional amount under this section is to be reduced in accordance with subsections (4) to (7).

(4) Where—

(a) the standard members do not have a collective additional amount under section 206 for the period, and

(b) the collective additional amount under this section (before reduction by relevant QDT credit) is equal to or greater than the sum of amounts of qualifying domestic top-up tax accrued by those members in that period,

the collective additional amount under this section is to be reduced by the sum of those accrued amounts.

(5) Where—

(a) the standard members do not have a collective additional amount under section 206 for the period, and

(b) the collective additional amount under this section (before reduction by relevant QDT credit) is less than the sum of amounts of qualifying domestic top-up tax accrued by those members in that period,

the collective additional amount under this section is to be reduced to nil.

(6) Where—

(a) the standard members have a collective additional amount under section 206 for the period, and

(b) the sum of the collective additional amount under this section (before reduction by relevant QDT credit) and the collective additional amount under section 206 is less than the sum of amounts of qualifying domestic top-up tax accrued by those members in that period,

the collective additional amount under this section is to be reduced to nil.

(7) Where—

(a) the standard members have a collective additional amount under section 206 for the period, and

(b) the sum of the collective additional amount under this section (before reduction by relevant QDT credit) and the collective additional amount under section 206 is equal to or greater than the sum of amounts of qualifying domestic top-up tax accrued by those members in that period,

the collective additional amount under this section is to be reduced by the amount given by multiplying the sum of those amounts of qualifying domestic top-up tax by the amount given by dividing the collective additional amount under this section by the sum of that collective additional amount and the collective additional amount under section 206.

204 Allocation of collective additional amount under section 203 to members U.K.

(1) Where the standard members of a multinational group in a territory have a collective additional amount under section 203, an amount of that amount is to be allocated to each member that has a negative covered tax balance, expressed as a negative number, which is less than the adjusted profits of that member (which may be positive or negative) multiplied by 15%.

(2) To determine the amount of the collective additional amount to be allocated to each such member, take the following steps—

• Step 1

  For each such member determine the amount given by subtracting the member’s negative covered tax balance, expressed as a negative number, from its adjusted profits multiplied by 15%.

• Step 2

  Add together the amounts determined under Step 1.

• Step 3

  For each such member, divide the amount determined for that member under Step 1 by the result of Step 2.

• Step 4

  Allocate to each member the amount given by multiplying the result of Step 3 for that member by the collective additional amount.

(3) For the purposes of this Part, an amount of a collective additional amount allocated to a member of a multinational group under this section is an additional top-up amount.

(4) Chapter 7 (allocation of top-up amounts to responsible members) applies to an additional top-up amount allocated to a member of a multinational group under this section as it applies to a top-up amount of that member as if the adjusted profits of that member were the amount given by dividing the additional top-up amount by 15%.

205 Election to carry forward and reduce collective additional amount U.K.

(1) This section applies where the standard members of a multinational group in a territory (“the relevant territory”) have a collective additional amount [F1 under section 203] for an accounting period (“the current period”) and the filing member of the group has elected for this section to apply for that period.

(2) Where this section applies—

(a) the qualifying amount of the collective additional amount [F2 under section 203] for the current period is to be subtracted from the combined covered tax balance for the standard members of the group in the relevant territory in the next accounting period in which [F3 the members of the group in the relevant territory] do not have a collective loss, and

(b) the collective additional amount [F4 under section 203] for the current period is to be reduced by the qualifying amount of that collective additional amount (including to nil where the whole amount is qualifying).

(3) The amount of the collective additional amount [F5 under section 203] that is “qualifying” is the amount given by subtracting the amount of any deferred tax asset deemed to arise under section 217(7) for the period.

(4) Paragraph 2 of Schedule 15 (annual elections) applies to an election under this section.

Textual Amendments

F1 Words in s. 205(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. 54(1)(a)

F2 Words in s. 205(2)(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. 54(1)(b)(i)

F3 Words in s. 205(2)(a) 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. 54(1)(b)(ii)

F4 Words in s. 205(2)(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. 54(1)(c)

F5 Words in s. 205(3) 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. 54(1)(d)