Finance (No. 2) Act 2023

Election U.K.

3 (1) The filing member of a multinational group may elect that all of the standard members of the group located in a territory specified in the election do not have top-up amounts or additional top-up amounts for an accounting period.

(2) An election may only be made for an accounting period if—

(a) the period commences on or before 31 December 2026 and ends on or before 30 June 2028,

(b) a qualifying country-by-country report has been prepared in relation to the territory for the period,

(c) the election has been made in respect of the territory for each preceding accounting period—

(i) that commenced on or after 31 December 2023, and

(ii) in which the Pillar Two rules applied to members of the group in the territory,

(d) an election under section 189 (deemed distribution tax election) has not been made in respect of the territory for the accounting period, and

(e) at least one of the following tests are met for the territory in accounting period—

(i) the threshold test (see paragraph 7),

(ii) the simplified effective tax rate test (see paragraph 8), or

(iii) the routine profits test (see paragraph 9).

(3) An election may not be made in respect of the territory of the ultimate parent of a multinational group for an accounting period if the ultimate parent is a flow-through entity unless, were the adjusted profits of the ultimate parent determined for that period in accordance with Part 3—

(a) its adjusted profits would be nil as a result of the application of section 170 (adjustments for ultimate parent that is a flow-through entity), or

(b) all of the ultimate parent’s adjusted profits would be attributable to one or more permanent establishments (see section 159) and no amount of income or expense of any permanent establishment would be treated, as a result of section 160 (attribution of losses between permanent establishment and main entity), as income or expense of the ultimate parent.

(4) Where a multinational group was not a qualifying multinational group in an accounting period only as a result of not meeting condition B in section 129(3) (requirement that at least one member is located in the United Kingdom), the condition in sub-paragraph (2)(c) is to be treated as met in relation to that period if an election corresponding to an election under this paragraph has been made in respect of the territory for the purposes of a tax imposed by a Pillar Two territory that is equivalent to multinational top-up tax.

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

(6) The information return in which the election is made must set out which of the tests referred to in sub-paragraph (2)(e) are being relied on and include evidence of how any that is relied on is met.

(7) In this Part of this Schedule “qualifying country-by-country report” in relation to a territory means a country-by-country report in respect of a multinational group—

(a) that is in accordance with the OECD's guidance on country-by-country reporting (within the meaning of section 122 of FA 2015),

(b) that is filed in accordance with legislation implementing that guidance, and

(c) in which information relating to the territory is prepared on the basis of qualified financial statements of the multinational group (see paragraph 4).

(8) Reference to a qualifying country-by-country report in respect of a multinational group that is a multi-parent group is reference to a report in respect of all of the constituent groups.