Finance Act 2024

Effect of becoming subject to Pillar Two rules U.K.

45 (1) After section 273 insert—

“273A References to Pillar Two rules

(1) The provisions mentioned in subsection (2) apply to a qualifying entity, for domestic or domestic entity purposes, as if the references to the first accounting period for which the Pillar Two rules apply were to the first accounting period for which the entity is a qualifying entity.

(2) Those provisions are—

(a) section 185;

(b) section 187;

(d) sub-paragraph (4) of paragraph 2 of Schedule 16 (but see also section 276(c)(iii) which omits that paragraph in the case of a qualifying entity that is not a member of a group).

273B Effect of becoming subject to Pillar Two rules

(1) This section applies where the Pillar Two rules did not apply to a qualifying entity for one or more accounting periods (each a “pre-Pillar Two period”).

(2) Where—

(a) the entity has a recaptured deferred tax liability arising as a result of section 184 (recaptured deferred tax liabilities),

(b) the initial period, in relation to that liability, is a pre-Pillar Two period, and

(c) the first accounting period in which the Pillar Two rules apply to the entity is earlier than the sixth accounting period after the initial period,

section 184(2) (recalculation in initial period taking account of recaptured deferred tax liability) does not apply in relation to that recaptured deferred tax liability.

(3) Where an election under section 187 (election for losses to be treated as special loss deferred tax assets) applied to the entity in a pre-Pillar Two period—

(a) the election ceases to have effect for the first accounting period in which the Pillar Two rules apply, and

(b) subsection (2)(b) of section 187 does not apply to prevent the making of an election under section 187 that applies to the entity and that has effect for that period, but

(c) no remaining amount of special loss deferred tax assets that arose in a pre-Pillar Two period may be used in that first accounting period or any subsequent accounting period.

(4) Subsection (5) or (6) (as the case may be) applies where—

(a) a deferred tax asset arises to the entity in a pre-Pillar Two period,

(b) section 185(7)—

(i) applies to that asset for the purposes of multinational top-up tax, or

(ii) would, ignoring subsection (5) below, apply to that asset for those purposes, and

(c) the asset is reflected in a collective additional amount for the purposes of domestic top-up tax.

(5) Where—

(a) an election has been made under section 205 (election to carry forward) in relation to the collective additional amount,

(b) the subtraction required by subsection (2)(a) of that section has not occurred in a pre-Pillar Two period,

the amount to be subtracted as a result of that subsection is to be reduced by so much of that amount as reflects the asset.

(6) Otherwise, section 185(7) does not apply to the asset for the purposes of multinational top-up tax to the extent it was reflected in a collective additional amount for the purposes domestic top-up tax.”

(2) In section 276 (application of transitional provision)—

(a) after paragraph (a) insert—

“(aa) where a qualifying member is a member of a group, for paragraph 3(2)(c) there were substituted—

“(c) the election has been made in respect of the territory for each preceding accounting period that commenced on or after 31 December 2023—

(i) in which the Pillar Two rules would, ignoring any transitional safe harbour election, have applied to any member of the group in the territory, and

(ii) in which any member of the group is a qualifying entity for the purposes of domestic top-up tax,”,”, and

(b) in paragraph (c), after sub-paragraph (iii) insert—

“(iiia) for paragraph 3(2)(c) there were substituted—

“(c) the election has been made in respect of the territory for each preceding accounting period that commenced on or after 31 December 2023 in which the member was a qualifying entity for the purposes of domestic top-up tax,”,”.