Finance (No. 2) Act 2023

Election U.K.

3 [F1 (1) The filing member of a multinational group may make a transitional safe harbour election for an accounting period in respect of a territory.

(1A) The effect of the election is that all of the standard members of the group located in the territory are to be treated as not having top-up amounts or additional top-up amounts for the purpose of determining the liability of any member of the group to multinational top-up tax.]

(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 [F2 would, ignoring any transitional safe harbour election, have applied to any member] 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.

F3 (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(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.

[F4 (7) For the purposes of this Part of this Schedule, a country-by-country report in relation to a territory is “qualifying” if the information relating to the territory is prepared on the basis of qualified financial statements of the multinational group (see paragraph 4).

(8) Where there is no requirement under the law of any territory for a country-by-country report to be prepared and filed in respect of a multinational group, the filling member may include, in the information return in which the election is made, the information that would have been in such a report—

(a) prepared in accordance with legislation implementing the OECD’s guidance on country-by-country reporting under the law of the territory of the ultimate parent, or

(b) where there is no such legislation, prepared in accordance with that guidance.

(9) Where such information has been included in that information return, that information is to be treated as if it were a country-by-country report in relation to the territory for the purposes of this Chapter (and where that information complies with sub-paragraph (7), the condition in sub-paragraph (2)(b) is to be treated as met).]

Textual Amendments

F1 Sch. 16 para. 3(1)(1A) substituted for Sch. 16 para. 3(1) (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. 39(2)

F2 Words in Sch. 16 para. 3(2)(c)(ii) 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(3)(a)

F3 Sch. 16 para. 3(4) 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. 34(3)(b)

F4 Sch. 16 para. 3(7)-(9) substituted for Sch. 16 para. 3(7)(8) (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. 29(2)