Revenue Note for Guidance

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Revenue Note for Guidance

111AO Joint ventures

Summary

This Section provides for the treatment of joint ventures under the Pillar Two Rules. As a joint venture is not controlled exclusively by one person, its accounting results are generally not consolidated with any of its owners on a line-by-line basis. Instead, the financial results of joint ventures are commonly reported by MNE groups using the equity method in their consolidated financial statements. Absent a special rule, this accounting treatment would exclude them from the scope of this Part because they do not meet the definition of a constituent entity, which requires an entity to be consolidated on a line-by-line basis.

Details

Definitions

(1) Introduces definitions relating to joint ventures:

“joint venture” means an entity whose ownership interests are at least 50% held directly or indirectly by its ultimate parent entity and whose financial results are reported under the equity method in the consolidated financial statements of the ultimate parent entity but shall not include:

  1. an ultimate parent entity of an MNE group or of a large-scale domestic group to which a qualified IIR applies,
  2. an excluded entity,
  3. an entity whose ownership interests held by the MNE group or large-scale domestic group are held directly through an excluded entity and which:
    1. operates exclusively or almost exclusively to hold assets or invest funds for the benefit of its investors,
    2. carries out activities that are ancillary to those carried out by the excluded entity, or
    3. has substantially all of its income excluded from the calculation of qualifying income or loss in accordance with section 111P(2)(b) and (c) (excluded dividends and equity gains or losses),
  4. an entity that is held by an MNE group or large-scale domestic group composed exclusively of excluded entities, or
  5. a joint venture affiliate.

“joint venture affiliate” means:

  1. an entity whose assets, liabilities, income, expenses and cash flows are consolidated by a joint venture under an acceptable financial accounting standard or would have been consolidated had the joint venture been required to consolidate such assets, liabilities, income, expenses and cash flows under an acceptable financial accounting standard, or
  2. a permanent establishment whose main entity is a joint venture or an entity referred to in paragraph (a);

“joint venture group” means a joint venture and its joint venture affiliates;

Application

(2) For the purposes of this section, a permanent establishment referred to in paragraph (b) of the definition of ‘joint venture affiliate’ shall be treated as a separate joint venture affiliate.

(3) Section 111E to section 111J (charging provisions in respect of the IIR top-up tax) shall apply to a parent entity that holds a direct or indirect ownership interest in a joint venture or a joint venture affiliate with respect to its allocable share of the top-up tax of that joint venture or joint venture affiliate for a fiscal year.

(4) This Part shall apply to the calculation of the top-up tax of a joint venture group for a fiscal year as if the joint venture and its joint venture affiliates were constituent entities of a separate MNE group or large-scale domestic group and the joint venture was the ultimate parent entity of that group.

(5) The top-up tax of a joint venture group for a fiscal year shall be reduced by each parent entity’s allocable share of the top-up tax under subsection (3) of each member of the joint venture group that is brought into charge under subsection (4), and any remaining amount of top-up tax shall be added to the total UTPR top-up tax amount pursuant to section 111N (3).

Relevant Date: Finance Act 2024