Revenue Note for Guidance

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Revenue Note for Guidance

111AH Minority owned constituent entities

Summary

Special rules are included in this section for computing the ETR and top-up tax of minority-owned constituent entities. A minority-owned constituent entity is a constituent entity of the MNE Group where the UPE holds directly or indirectly 30% or less of its ownership interests. The entities are constituent entities because the UPE holds their Controlling Interests, despite the small ownership percentage.

Special rules are needed for minority–owned constituent entities because a UPE may have several minority-owned constituent entities with operations in the same jurisdiction but with different groups of owners that are not group entities. If the income and taxes of these different constituent entities were blended in the jurisdictional ETR computations, low-tax outcomes in one entity could result in a top-up tax for the jurisdiction, some of which would be borne by non-group entity owners of a different constituent entity.

Details

Definitions

(1) Introduces definitions relating to the calculation of the top-up tax of minority-owned constituent entities.

“minority-owned constituent entity” means a constituent entity in which the ultimate parent entity has a direct or indirect ownership interest of 30% or less of the total ownership interests of the constituent entity;

“minority-owned parent entity” means a minority-owned constituent entity that holds, directly or indirectly, the controlling interests in another minority-owned constituent entity, except where the controlling interests in the former entity are held, directly or indirectly, by another minority-owned constituent entity;

“minority-owned subgroup” means a minority-owned parent entity, and its minority-owned subsidiaries;

“minority-owned subsidiary” means a minority-owned constituent entity whose controlling interests are held, directly or indirectly, by a minority-owned parent entity.

Application

(2)(a) The calculation of the effective tax rate and the top-up tax for a jurisdiction shall apply as if each minority-owned subgroup was a separate MNE group or large-scale domestic group.

(2)(b) The adjusted covered taxes and qualifying income or loss of members of a minority-owned subgroup shall be excluded from:

  1. the determination of the residual amount of the effective tax rate for the jurisdiction of the MNE group or large-scale domestic group, calculated in accordance with section 111AC(2), and
  2. the net qualifying income or loss for the jurisdiction of the MNE group or large-scale domestic group calculated in accordance with section 111AC(3).

(3)(a) The effective tax rate and top-up tax of a minority-owned constituent entity, that is not a member of a minority-owned subgroup, shall be calculated on an entity basis.

(3)(b) The adjusted covered taxes and qualifying income or loss of the minority-owned constituent entity referred to in paragraph (a), shall be excluded from:

  • the determination of the residual amount of the effective tax rate for the jurisdiction of the MNE group or large-scale domestic group, calculated in accordance with section 111AC(2), and
  • the net qualifying income or loss for the jurisdiction of the MNE group or large-scale domestic group calculated in accordance with section 111AC(3).

(3)(c) This subsection shall not apply to a minority-owned constituent entity that is an investment entity.

Relevant Date: Finance Act 2024