Part 3Multinational top-up tax
Chapter 5Covered tax balance
Eligible distribution tax systems: deemed taxes
189Deemed distribution tax election
1
The filing member of a multinational group may make an election that section 190 (deemed distribution tax) applies to all of the standard members of the group in a particular territory for an accounting period.
2
An election under subsection (1) may only be made in relation to a territory if that territory has an eligible distribution tax system.
3
In this Part “eligible distribution tax system” means a system of tax on company profits that—
a
is generally only payable when a company distributes, or is deemed to distribute, those profits to its members, or when it incurs certain non-business expenses,
b
is charged at a rate of at least 15%, and
c
was in force on or before 1 July 2021.
4
Paragraph 2 of Schedule 15 (annual elections) applies to an election under this section.
190Deemed distribution tax amount
1
Where this section applies to the standard members of a multinational group in a territory for an accounting period, those members have a deemed distribution tax amount for that period.
2
The deemed distribution tax amount is the lesser of—
a
the amount that, when added to the result of Step 4 in section 132(1), would result in the effective tax rate of those members for that period being 15%, and
b
the amount of tax that would have been due in that territory if all of those members had distributed all of their profits of that period.
3
The combined covered tax balance of those members for that period, as determined under Step 4 in section 132(1), is to be increased by adding that deemed distribution tax amount.
4
In the following accounting period, those members have a “recapture amount” in respect of the previous accounting period that is (initially) equal to the deemed distribution tax amount for that period.
5
Those members continue to have a recapture amount in respect of an accounting period until the earlier of—
a
the end of the fourth accounting period after the period in which the recapture amount first arose, and
b
the time when the recapture amount has reduced to nil.
6
Section 191 sets out how recapture amounts reduce.
7
If the recapture amount in respect of an accounting period has not reduced to nil by the end of the fourth accounting period after that period the following are to be recalculated for the period in which the recapture amount arose, with the amount of the recapture amount remaining subtracted from the combined covered tax balance (after the addition of the deemed distribution tax amount)—
a
the effective tax rate for those members, and
b
the top-up amounts that those members would have following that recalculation.
191Reduction of recapture amount
1
Where standard members of a multinational group in a territory have a recapture amount in an accounting period (“the relevant period”) in respect of a previous accounting period that amount is to be reduced in accordance with subsections (3) to (5).
2
If those members have more than one recapture amount in the relevant period, those reductions are to be applied first to the recapture amount in respect of the earliest accounting period, then the next earliest and so on.
3
First, if any of the members have accrued qualifying taxes in the relevant period reduce the recapture amount (but not below nil) by the amount of qualifying taxes accrued by the members in that period that is available.
4
Then, if the members have a collective loss for the relevant period (and if the recapture amount has not been reduced to nil) reduce the recapture amount (but not below nil) by the amount of that loss that is available multiplied by 15%.
5
Finally, if the members have a qualifying carried forward loss (and if the recapture amount has not been reduced to nil) reduce the recapture amount (but not below nil) by the amount of the qualifying carried forward loss that is available.
6
An amount is “available” to the extent it has not been used to reduce another recapture amount (in the case of a qualifying carried forward loss, whether in that period or a previous period).
7
For the purposes of subsections (3) to (6)—
“qualifying taxes” means taxes accrued in the relevant period on actual or deemed distributions of profits;
members of the group have a “collective loss” for an accounting period if the result of Step 2 in section 132(1) is less than nil, and the amount of that loss is that result expressed as a positive number,
members of the group have a “qualifying carried forward loss” if —
- a
they had a collective loss in a period, and
- b
after making reductions in accordance with subsections (2) to (5) an amount of that collective loss remains available,
and the amount of that qualifying carried forward loss is the amount of the collective loss that remained available.
- a
8
Any amount of qualifying taxes accrued by a member of the group that is used to reduce a recapture amount is excluded from that member’s covered tax balance.
192Recalculation where member leaves the group
1
This section applies where—
a
in an accounting period (“the relevant period”), a standard member of a multinational group (“D”) in a territory (“the relevant territory”)—
i
leaves the group,
ii
transfers all, or substantially all, of its assets to an entity who is not a member of the group or to an individual, or
iii
transfers all, or substantially all, of its assets to a member of the group that is not located in the relevant territory, and
b
the standard members (including D) of the group in the relevant territory (“the relevant members”) had, in previous accounting periods, one or more recapture amounts (each a “recapture period”).
2
Where this section applies, the following are to be recalculated for each recapture period—
a
the effective tax rate for the relevant members, and
b
the top-up amounts that those members would have in accordance with that recalculation.
3
In recalculating that rate and those amounts for each of those periods, deduct the amount of each recapture amount that was outstanding in the period (after any reduction under section 191 in that period) from the combined covered tax balance of those members for the period.
4
The relevant members have a special additional top-up tax amount under this section for the relevant period that is equal to the sum of the amounts given by—
a
subtracting the amount of top-up amounts those members had for each recapture period from the sum of the top-up amounts those members would have for that period as recalculated under subsection (2)(b), and
b
multiplying the result of paragraph (a) for each recapture period by the disposition recapture ratio for that period.
5
Subject to subsections (6) and (7), the disposition recapture ratio for an accounting period is the amount given by dividing—
a
the adjusted profits of D in that period, by
b
the result of Step 2 in section 132(1) for the relevant members for that period.
6
If either of the amounts described in paragraph (a) or (b) of subsection (5) is nil or less, the disposition recapture ratio is nil.
7
If (ignoring this subsection) the disposition recapture ratio would be greater than 1, it is to be treated as 1.
8
Sections 206 and 207 include further provision about special additional top-up tax amounts under this section.
9
Each of the amounts mentioned in subsection (10) for each affected period is to be treated, for the purposes of this Part, as the amount given by multiplying—
a
that amount, by
b
the amount given by subtracting the disposition recapture ratio for that period from 1.
10
Those amounts are—
a
the result of Step 2 in section 132(1) for those members for that period;
b
the combined covered tax balance of the standard members of the group in the relevant territory;
c
any recapture amount those members have in that affected period;
d
the substance based income exclusion for that period for that territory.
11
An accounting period is an affected period if it is—
a
a recapture period, or
b
the relevant period and the standard members of the group in the territory have one or more recapture amounts in that period.