Revenue Note for Guidance

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Revenue Note for Guidance

111AR Ultimate parent entity subject to a deductible dividend regime

Summary

This section contains a set of rules for UPEs that are subject to a deductible dividend regime. These rules allow a deduction in the computation of the qualifying income or loss for deductible dividends.

Details

Definitions

(1) Introduces definitions required for interpreting the rules that apply to entities that are subject to a deductible dividend regime:

“cooperative” means an entity that collectively markets or acquires goods or services on behalf of its members and that is subject to a tax regime in the jurisdiction where it is located that ensures tax neutrality in respect of goods or services that are sold or acquired by its members through the cooperative;

“deductible dividend regime” means a tax regime that applies a single level of taxation on the income of the owners of an entity by deducting or excluding from the income of the entity the profits distributed to the owners or by exempting a cooperative from taxation;

“deductible dividend” means, with respect to a constituent entity that is subject to a deductible dividend regime, a distribution of profits to the holder of an ownership interest in the constituent entity that is deductible from the taxable income of the constituent entity under the laws of the jurisdiction in which it is located, or a patronage dividend to a member of a cooperative;

“patronage dividend” means a distribution by a cooperative to its members;

“supply cooperative” means a cooperative that purchases goods or services and resells them to its members and whose profits are distributed to its members.

Application

(2) Subject to subsection (3), this subsection provides that an ultimate parent entity of an MNE group or of a large-scale domestic group shall reduce its qualifying income for the fiscal year by the amount that is distributed as a deductible dividend within 12 months after the end of the fiscal year. Such a reduction shall not exceed the amount of qualifying income for the fiscal year.

(3) A reduction of the ultimate parent entities qualifying income shall apply where:

  • (3)(a) the recipient of the dividend is subject to tax in respect of that dividend for a taxable period that ends within 12 months after the end of the fiscal year at a nominal rate of tax that equals or exceeds the minimum tax rate,
  • (3)(b) it can be reasonably expected that the aggregate amount of covered taxes paid by the ultimate parent entity and taxes paid by the recipient on such dividend equals or exceeds that income multiplied by the minimum tax rate, or
  • (3)(c) the recipient of the dividend is:
    1. a natural person, and the dividend received is a patronage dividend from a supply cooperative,
    2. a natural person that is tax resident in the same jurisdiction where the ultimate parent entity is located and that holds ownership interests representing a right to 5 per cent or less of the profits and assets of the ultimate parent entity, or
    3. a governmental entity, an international organisation, a non-profit organisation or a pension fund other than a pension services entity, that is tax resident in the jurisdiction where the ultimate parent entity is located.

(4) Provides a requirement that the covered taxes of an ultimate parent entity are reduced (other than the taxes for which a dividend deduction was allowed under a deductible dividend regime) in the same proportion as the amount of qualifying income of the ultimate parent entity is reduced in accordance with subsections (2) and (3).

(5) Where the ultimate parent entity holds an ownership interest in another constituent entity that is subject to a deductible dividend regime, directly or through a chain of such constituent entities, subsections (2), (3) and (4) shall apply to any other constituent entity located in the jurisdiction of the ultimate parent entity that is subject to the deductible dividend regime, to the extent that its qualifying income is further distributed by the ultimate parent entity to recipients that meet the requirements set out in subsections (2) and (3).

(6) For the purposes of subsection (3), the recipient of a patronage dividend distributed by a supply cooperative shall be treated as subject to tax in respect of that dividend insofar as that dividend reduces a deductible expense or cost in the calculation of the recipient’s taxable income or loss.

Relevant Date: Finance Act 2024