Part 1U.K.General transitional measures
Transitional relief for substance-based income exclusionU.K.
1(1)Section 195(4) (payroll carve-out amount) has effect for an accounting period that commences in a year listed in following table as if for “5%” there were substituted the specified percentage for that year—
| Year | Specified percentage |
|---|---|
| 2023 | 10% |
| 2024 | 9.8% |
| 2025 | 9.6% |
| 2026 | 9.4% |
| 2027 | 9.2% |
| 2028 | 9.0% |
| 2029 | 8.2% |
| 2030 | 7.4% |
| 2031 | 6.6% |
| 2032 | 5.8% |
(2)Section 195(5) (tangible asset carve-out amount) has effect for an accounting period that commences in a year listed in following table as if for “5%” there were substituted the specified percentage for that year—
| Year | Specified percentage |
|---|---|
| 2023 | 8% |
| 2024 | 7.8% |
| 2025 | 7.6% |
| 2026 | 7.4% |
| 2027 | 7.2% |
| 2028 | 7.0% |
| 2029 | 6.6% |
| 2030 | 6.2% |
| 2031 | 5.8% |
| 2032 | 5.4% |
Intra-group transfers before entry into regimeU.K.
2(1)Sub-paragraph (3) applies where—
(a)assets are transferred from one member of a multinational group to another member of that group,
[F1(b)the Pillar Two rules do not apply to the transferor for the accounting period in which the transfer takes place (but in determining this, section 255(4) has effect as if sub-paragraph (ii) of paragraph (b) were omitted),
(ba)a qualifying domestic top-up tax does not apply in relation to the transferor for that period, and]
(c)the transfer took place on or after 1 December 2021.
(2)But sub-paragraph (3) does not apply in relation to a transfer of assets manufactured, or of a class or description sold, in the course of carrying on a trade by the transferor or the transferee.
(3)Where this sub-paragraph applies, for the purposes of Part 3 of this Act—
(a)the value of the assets at the relevant time is the carrying value of the assets in the hands of the transferor immediately before the transfer, and
(b)any deferred tax asset that would arise in relation to the assets in the underlying profits of the transferee is limited to [F2the lesser of the cap amount and the sum of—
(i)the value of deferred tax assets that arose in relation to the assets before their transfer, and
(ii)]the tax paid amount in relation to the transfer of assets.
[F3(3A)For the purposes of determining the value of a deferred tax asset under sub-paragraph (3)(b)(i)—
(a)if the rate of tax in relation to that asset is greater than 15%, the value is to be adjusted so that it reflects the value it would be if the rate had been 15%, and
(b)exclude the impact of any valuation adjustments or accounting recognition adjustments.]
(4)For the purposes of this paragraph “the relevant time” means the later of—
(a)the date of the transfer, and
(b)the commencement of the first accounting period in which [F4the Pillar Two rules apply to the transferee.]
F5(i). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F5(ii). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5)Where the relevant time is after the date of the transfer—
(a)the value of the assets at the relevant time is to be adjusted to reflect—
(i)capitalised expenditure incurred in respect of the assets in the period between the date of the transfer and the relevant time, and
(ii)amortisation and depreciation of the assets that, had the transfer not occurred, would have been recognised by the transferor if the transferor had continued to use the accounting policies and rates for amortisation and depreciation of the assets previously used, and
(b)the tax paid amount in relation to the transfer of the assets [F6, and the value of deferred tax assets that arose in relation to the assets before their transfer, are] to be adjusted to reflect the matters referred to in paragraph (a)(i) and (ii).
(6)To determine the “tax paid amount” in relation to a transfer of assets take the following steps—
Step 1
Determine the amount of the tax expense of the transferor in relation to the transfer of the assets that relates to covered taxes.
Step 2
Determine the amount, if any, of qualifying current tax expense relating to the transfer of the assets that would have been allocated to the transferor as a result of section 177 or 179 (permanent establishments and controlled foreign company regimes) if—
(a)[F7the ultimate parent had been located in the United Kingdom and the accounting period commenced on or after 31 December 2023, and]
(b)section 179(2) (restriction of allocation of mobile income) were ignored.
Step 3
Add together the amounts determined under Steps 1 and 2.
[F8(7)In determining the tax expense of the transferor in relation to the transfer of the assets—
(a)where any loss arising in the accounting period in which the transfer took place is offset against any taxable gain arising on the transfer, ignore that offsetting, and
(b)exclude the impact of any valuation adjustments or accounting recognition adjustments.]
(8)The “cap amount” in relation to a transfer of assets is the amount given by—
(a)dividing—
(i)the amount of tax expense determined under Step 1 in sub-paragraph (6), by
(ii)the nominal rate of tax to which that expense relates, and
(b)multiplying the result of paragraph (a) by 15%.
(9)Where [F9the sum of] the tax paid amount [F10and the value of deferred tax assets that arose in relation to the assets before their transfer is greater than] the cap amount F11..., the filing member may elect that sub-paragraph (3) does not apply in relation to the transfer of assets.
(10)Paragraph 2 of Schedule 15 (annual elections) applies to an election under sub-paragraph (9).
(11)For the purposes of this paragraph,
[F12(a)]“a transfer of assets” includes a transaction that relates to assets that does not result in a change in their ownership if the transaction has [F13a similar effect for accounting purposes to] a change in ownership of those assets;
[F14(b)a qualifying domestic top-up tax is not to be taken as applying to a member of a multinational group if provision for a QDMTT Safe Harbour (within the meaning of the Pillar Two rules) applies to it.]
[F15(12)Where assets are transferred from one member of a multinational group to another member of that group as a result of a series of transfers that—
(a)fall within sub-paragraph (1), but
(b)do not fall within sub-paragraph (2),
that series is to be treated as a single transfer of assets that falls within sub-paragraph (1).
(13)This paragraph applies to that single transfer as if—
(a)the reference to the transferor in sub-paragraph (3)(a) were to the transferor in relation to the first transfer in the series,
(b)the references in sub-paragraph (3)(b) to the cap amount, the value of deferred tax assets that arose in relation to the assets before their transfer and the tax paid amount were to the aggregate of each such amount or value as determined for the purpose of each transfer that makes up the series,
(c)the reference to the date of the transfer in sub-paragraph (4)(a) were to the date of the last transfer in the series, and
(d)the references to the transferee in sub-paragraph (4)(b) were to the transferee in relation to the last transfer in the series.]
Textual Amendments
F1Sch. 16 para. 2(1)(b)(ba) substituted for Sch. 16 para. 2(1)(b) (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(2)(a)
F2Words in Sch. 16 para. 2(3)(b) inserted (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. 38(2)
F3Sch. 16 para. 2(3A) inserted (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. 38(3)
F4Words in Sch. 16 para. 2(4)(b) inserted (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(2)(b)(i)
F5Sch. 16 para. 2(4)(b)(i)(ii) 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(2)(b)(ii)
F6Words in Sch. 16 para. 2(5)(b) 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. 38(4)
F7Words in Sch. 16 para. 2(6) 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(2)(c)
F8Sch. 16 para. 2(7) 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. 38(5)
F9Words in Sch. 16 para. 2(9) 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. 38(6)(a)
F10Words in Sch. 16 para. 2(9) 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. 38(6)(b)
F11Words in Sch. 16 para. 2(9) 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. 38(6)(c)
F12Words in Sch. 16 para. 2(11) renumbered as Sch. 16 para. 2(11)(a) (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(2)(d)(i)
F13Words in Sch. 16 para. 2(11) 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. 38(7)
F14Sch. 16 para. 2(11)(b) inserted (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(2)(d)(ii)
F15Sch. 16 para. 2(12)(13) inserted (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. 38(8)