111I Allocation of top-up tax under IIR

Summary

The top-up tax due with regards to a low taxed constituent entity shall be allocated to a parent entity based on their ownership interest in that low taxed constituent entity.

Details

(1) This subsection provides the calculation to determine the amount of top up tax due by a parent entity in respect of a low-taxed constituent entity. A parent entity’s allocable share in the top-up tax with respect to a low-taxed constituent entity is calculated with references to the proportion of the parent entity’s ownership interest in the qualifying income of the low-taxed constituent entity. The amount of top-up tax due by the parent entity in respect of a low taxed constituent entity is calculated as:

where—

A is the top-up tax of the low-taxed constituent entity, as calculated in accordance with section 111AD, and

B is the parent entity’s allocable share in that top-up tax for the fiscal year.

(2) This subsection provides the calculation to determine the amount of the parent’s allocable share in the top-up tax of the low-taxed constituent entity.

(2)(a) A parent entity’s allocable share in the top-up tax with respect to a low-taxed constituent is the proportion of the parent entity’s ownership interest in the qualifying income of the low-taxed constituent entity. This is calculated as follows:

where—

A is the qualifying income of the low-taxed constituent entity for the fiscal year,

B is the amount of qualifying income attributable to ownership interests held by owners other than the parent entity as determined by paragraph (b), and

C is the qualifying income of the low-taxed constituent entity for the fiscal year,

(2)(b) The amount of qualifying income attributable to ownership interests in a low-taxed constituent entity held by owners other than the parent entity shall be the amount that would have been treated as attributable to such owners under the principles of the acceptable financial accounting standard used in the ultimate parent entity’s consolidated financial statements if the low-taxed constituent entity’s net income were equal to its qualifying income, and

1. the parent entity had prepared consolidated financial statements in accordance with that accounting standard (in subsection (2) referred to as the ‘hypothetical consolidated financial statements’),
2. the parent entity owned a controlling interest in the low-taxed constituent entity such that all of the income and expenses of the low-taxed constituent entity were consolidated on a line-by-line basis with those of the parent entity in the hypothetical consolidated financial statements,
3. all of the low-taxed constituent entity’s qualifying income were attributable to transactions with persons that are not members of an MNE group or large-scale domestic group, and
4. all ownership interests not directly or indirectly held by the parent entity were held by persons other than members of an MNE group or large-scale domestic group.

(3) In addition to the amount allocated to a parent entity in respect of a low-taxed constituent entity, the IIR top-up tax due by a parent entity shall include the full amount of top-up tax calculated for that parent entity itself under section 111E, 111F, 111G and 111H.

Relevant Date: Finance Act 2024