Revenue Note for Guidance

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Revenue Note for Guidance

111AI Qualified domestic top-up tax safe harbour

Summary

A qualified domestic top-up tax may act as a safe harbour where it increases the MNE Group’s tax liability on domestic excess profits to the minimum rate. This section provides for an election to apply a qualified domestic top-up tax safe harbour where the qualified domestic top-up tax implemented under the tax law of that jurisdiction is determined to have met the QDTT Safe Harbour standards under an OECD peer review process.

Details

Definitions

(1) Introduces definitions relating to the qualified domestic top-up tax safe harbour as follows:

“OECD peer review process” means the review process developed, and undertaken under the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, in respect of the domestic top-up tax of a jurisdiction;

“QDTT Safe Harbour” shall be construed in accordance with subsection (2);

“QDTT Safe Harbour standards” means the standards referred to as “Standards for a QDMTT Safe Harbour” set out in the document referred to in paragraph (e) of the definition, in section 111B, of ‘OECD Pillar Two guidance’, i.e. the document entitled OECD (2023), Tax Challenges Arising from the Digitalisation of the Economy – Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two), OECD/G20 Inclusive Framework on BEPS, OECD, Paris published by the OECD on 17 July 2023;

“QDTT subgroup” means a group, constituent entity, joint venture or joint venture affiliate that is subject to a separate qualified domestic top-up tax calculation under the tax law of the jurisdiction implementing that qualified domestic top-up tax;

“specified return date” has the meaning assigned to it in section 111AAF.

Application

(2) Notwithstanding section 111AD(3) (calculation of top-up tax), and subject to subsections (3) to (6), on the making of an election by the filing constituent entity in respect of a QDTT subgroup for a fiscal year, jurisdictional top-up tax in respect of the QDTT subgroup for the fiscal year concerned other than such portion of the jurisdictional top-up tax as comprises additional top-up tax determined in accordance with section 111AF(1) (b), shall be deemed to be zero (referred to as the QDTT Safe Harbour’) where the qualified domestic top-up tax implemented under the tax law of that jurisdiction is determined to have met the QDTT Safe Harbour standards under an OECD peer review process in respect of that fiscal year.

Exclusions

(3) The QDTT Safe Harbour for a jurisdiction shall not apply where a qualified domestic top-up tax in respect of that jurisdiction:

  • (3)(a) is subject, directly or indirectly, to a challenge by the MNE group in judicial or administrative proceedings, or
  • (3)(b) has been determined as not assessable or collectible by the tax authority of the jurisdiction implementing the qualified domestic top-up tax, based on:
    1. constitutional grounds,
    2. other superior law, or
    3. a specific agreement with the government of the jurisdiction limiting the MNE group’s tax liability.

The QDTT Safe Harbour for a jurisdiction shall not apply in respect of an MNE group where:

  • (4)(a) the ultimate parent entity of the MNE group is a flow-through entity and located in a jurisdiction where qualified domestic top-up tax is not charged under the laws of that jurisdiction on an ultimate patent entity that is a flow through entity,
  • (4)(b) the members of the MNE group include a flow-through entity that is required to apply an IIR top-up tax and it is located in the jurisdiction where qualified domestic top-up tax is not charged under the laws of that jurisdiction on that flow-through entity,
  • (4)(c) a transitional exclusion consistent with the rules laid down in Article 49 of the Directive (with regard to the initial phase of exclusion from the IIR and UTPR) applies to the qualified domestic top-up tax applied by that jurisdiction and that exclusion is not limited to where a qualified IIR does not apply in respect of the constituent entities located in that jurisdiction, or
  • (4)(d) the members of the MNE group include a securitisation entity located in the jurisdiction and qualified domestic top-up tax is not charged under the laws of that jurisdiction on the securitisation entity, except where the jurisdiction applies the qualified domestic top-up tax to a securitisation entity but includes provisions to impose any qualified domestic top-up tax liability in respect of the income of a securitisation entity on another constituent entity of the MNE group that is not a securitisation entity, or on the securitisation entity itself if the domestic top-up tax liability cannot be otherwise collected.

(5) The QDTT Safe Harbour for a jurisdiction shall not apply in respect of an investment entity, that is not an excluded entity, of an MNE group where qualified domestic top-up tax is not charged under the laws of that jurisdiction on that investment entity.

(6) The QDTT Safe Harbour for a jurisdiction shall not apply in respect of a joint venture group where qualified domestic top-up tax is not charged under the laws of that jurisdiction on the members of the joint venture group.

Reporting

(7) All relevant information concerning the application of the QDTT Safe Harbour shall be included in the top-up tax information return for the fiscal year concerned in accordance with section 111AAI.

Relevant Date: Finance Act 2024