Finance (No. 2) Act 2023

163 Election to spread certain capital gains over five years U.K.

(1) The filing member of a multinational group may elect that the net gain in respect of the disposal of local tangible assets by standard members of the group in a territory in an accounting period (“the election period”) is to be spread across that period and the preceding 4 accounting periods ([F1 and those preceding periods are referred to collectively as] “the look-back period”) in accordance with subsection (2).

(2) To spread the net gain across those periods take the following steps—

• [F2 Step 1

  For each standard member of the group in the territory in the first accounting period of the look-back period (“the carry-back period”), determine whether it has net losses in respect of the disposal of local tangible assets (ignoring any losses in relation to which these steps have previously been carried out).]

• Step 2

  Allocate the proportion of the net gain in the election period to each standard member with such losses in the carry-back period that is equal to the proportion those losses represent of the total losses in respect of the disposal of local tangible assets of all such members of the group in the carry-back period.

• Step 3

  Adjust the underlying profits of each such member by reducing the member’s losses (but not below nil) by the amount allocated to it under Step 2.

• Step 4

  If there remains an amount of the net gain which was not used to reduce members’ losses in accordance with Step 3, carry out Steps 1 to 3 again, but as if—

  (a)

  the reference in Step 2 to the net gain were to that amount, and

  (b)

  the reference to the first accounting period of the look-back period were to the second accounting period of the look-back period.

• Step 5

  If there still remains an amount of the net gain which was not used to reduce the members’ losses, carry out Steps 1 to 3 again but as if—

  (a)

  the reference in Step 2 to the net gain were to that amount, and

  (b)

  the reference to the first accounting period of the look-back period were to the third accounting period of the look-back period.

• Step 6

  If there still remains an amount of the net gain which was not used to reduce the members’ losses, carry out Steps 1 to 3 again but as if—

  (a)

  the reference in Step 2 to the net gain were to that amount, and

  (b)

  the reference to the first accounting period of the look-back period were to the fourth accounting period of the look-back period.

• Step 7

  If there still remains an amount of the net gain which was not used to reduce the members’ losses, carry out Steps 1 to 3 again but as if—

  (a)

  the reference in Step 2 to the net gain were to that amount, and

  (b)

  the reference to the first accounting period of the look-back period were to the election period.

• Step 8

  If there still remains an amount of the net gain which was not used to reduced the members’ losses, divide the amount remaining by 5.

• [F3 Step 9

  Determine which of the standard members of the group (“current gain members”) located in the territory have net gains from the disposal of local tangible assets in the election period.

  A current gain member is not to be regarded as a current gain member in any accounting period in which—

  (a)

  it is not a standard member of the group, or

  (b)

  it is not located in the territory.

• Step 10

  For the election period and each accounting period that is in the look-back period, adjust the underlying profits for that period (“the adjustment period”) of each current gain member by adding the amount given by multiplying—

  (a)

  the result of Step 8, by

  (b)

  the amount given by dividing—

  (i)

  the net gains of the current gain member from the disposal of local tangible assets in the election period, by

  (ii)

  the sum of net gains from the disposal of local tangible assets in the election period of all current gain members in the adjustment period.

• Step 11

  Where there are no current gain members in an accounting period in the look-back period, adjust the underlying profits for that period of each standard member located in the territory for that period by adding the amount given by multiplying—

  (a)

  the result of Step 8, by

  (b)

  the amount given by dividing 1 by the number of standard members of the group in the territory in that accounting period.

• Step 12

  Where there are no standard members of the group in the territory in one or more accounting periods in the look-back period, further adjust the underlying profits for the election period of each current gain member by adding the amount given by multiplying—

  (a)

  the result of Step 8 multiplied by the number of accounting periods in the look-back period in which no standard members of the group were located in the territory, by

  (b)

  the amount given by dividing—

  (i)

  the net gains of the current gain member from the disposal of local tangible assets in the election period, by

  (ii)

  the sum of net gains from the disposal of local tangible assets in the election period of all current gain members.]

(3) For the purposes of this section any gain or loss arising from the transfer of assets between F4 ... members of a multinational group is to be ignored.

(4) Where, as a result of an election under this section, the underlying profits of a member of a multinational group in an accounting period is adjusted, the following are to be recalculated for that period—

(a) the effective tax rate for the member and the other members of that group located in the same territory, and

(b) the top-up amounts that those members would have.

(5) Section 206—

(a) makes provision about the consequences of a recalculation (which may include the generation of an additional top-up amount), and

(b) applies to recalculations under subsection (4).

(6) Where an election under this section has effect in relation to a member of a multinational group, any amount of tax with respect to any gains or loss in respect of the disposal of local tangible assets in the election year is to be excluded from the calculation of the member’s covered tax balance.

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

(8) In this section “local tangible asset” means immovable property in the same territory as the member disposing of it is located.

Textual Amendments

F1 Words in s. 163(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. 13(2)

F2 Words in s. 163(2) 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. 13(3)(a)

F3 Words in s. 163(2) 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. 13(3)(b)

F4 Word in s. 163(3) 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. 13(4)