Finance (No. 2) Act 2023

163 Election to spread certain capital gains over five years

(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 (collectively “the look-back period”) in accordance with subsection (2).

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

• Step 1

  For each standard member of the group in the territory, determine whether it has net losses in the first accounting period of the look-back period (“the carry-back period”) 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.

• Step 9

  For each accounting period of the look-back period, determine whether any member of the group in the territory has net gains from the disposal of local tangible assets.

• Step 10

  For each accounting period in the look-back period where at least one standard member in the territory has such gains, adjust the underlying profits of each member who has such gains in that period by adding the amount given by multiplying the result of Step 8 by the amount given by dividing the amount of those gains by the amount of net gains from the disposal of local tangible assets of all members in that territory for that period.

• Step 11

  For each accounting period in the look-back period where no member has any such gains, adjust the underlying profits of each member in the territory by adding the amount given by multiplying the result of Step 8 by the amount given by dividing 1 by the number of members of the group in that territory.

(3) For the purposes of this section any gain or loss arising from the transfer of assets between standard 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.