111AJ. Transitional CbCR safe harbour

(1) In this section—

“country-by-country report” has the same meaning as in section 891H and references in this section to ‘CbC report’ shall be construed accordingly;

“investment entity jurisdiction” means the jurisdiction in which an investment entity is resident for the purposes of a CbC report;

“multi-parented MNE group” has the meaning assigned to it in section 111AP;

“net unrealised fair value loss” means the sum of all losses, as reduced by any gains, which arise from changes in fair value of ownership interests (other than portfolio shareholdings) included in an MNE group’s profit or loss before income tax in respect of a jurisdiction for a fiscal year as reported in its qualified CbC report;

“profit or loss before income tax” means an MNE group’s profit or loss before income tax in respect of a jurisdiction for a fiscal year as reported in its qualified CbC report;

“qualified CbC report” means a CbC report prepared and provided using qualified financial statements;

“qualified financial statements” means—

(a) the accounts used to prepare the consolidated financial statements of the ultimate parent entity before any consolidation adjustments eliminating intra-group transactions,

(b) separate financial statements of each constituent entity, joint venture or joint venture affiliate provided they are prepared in accordance with—

(i) an acceptable financial accounting standard, or

(ii) an authorised financial accounting standard and the information contained in the financial statements is reliable,

or

(c) in the case of a constituent entity that is not included in an MNE group’s consolidated financial statements on a line-by-line basis solely due to size or materiality grounds, the financial accounts of that constituent entity that are used for preparation of the MNE group’s CbC report;

“qualified person” means—

(a) in respect of an ultimate parent entity that is a flow-through entity, an ownership holder referred to in subsection (1) or (2) of section 111AQ, and

(b) in respect of an ultimate parent entity that is subject to a deductible dividend regime, a dividend recipient referred to in subsection (3) of section 111AR;

“simplified covered taxes” means the aggregate income tax expense of all constituent entities, or joint venture and joint venture affiliates, as the case may be, of an MNE group in a jurisdiction for a fiscal year, as reported in the MNE group’s qualified financial statements, excluding—

(a) any tax that is not a covered tax in accordance with section 111T, and

(b) uncertain tax positions reported in the MNE group’s qualified financial statements;

“simplified ETR” has the meaning assigned to it in subsection (3);

“total revenue” means an MNE group’s total revenues in respect of a jurisdiction for a fiscal year as reported in its qualified CbC report;

“transitional CbCR safe harbour” shall be construed in accordance with subsection (2);

“transition period” means any fiscal year beginning on or before 31 December 2026 but shall not include a fiscal year that ends after 30 June 2028;

“transition rate” means—

(a) for fiscal years beginning during the year 2023 or 2024, 15 per cent;

(b) for fiscal years beginning during the year 2025, 16 per cent;

(c) for fiscal years beginning during the year 2026, 17 per cent.

(2) Notwithstanding section 111AD(3), and subject to subsections (4), (7) to (11) and (14), on the making of an election by a filing constituent entity, the jurisdictional top-up tax for an MNE group in respect of a jurisdiction for a fiscal year during the transition period shall be deemed to be zero (referred to in this section as the ‘transitional CbCR safe harbour’) where, in respect of the fiscal year concerned—

(a) subject to subsection (5), the MNE group reports—

(i) total revenue of less than €10,000,000, and

(ii) profit or loss before income tax of less than €1,000,000, in respect of that jurisdiction (in this section referred to as ‘the de minimis test’),

(b) the MNE group has a simplified ETR, as determined under subsection (3), in respect of that jurisdiction that is equal to or greater than the transition rate for the fiscal year, or

(c) subject to subsection (6), the MNE group reports profit or loss before income tax in that jurisdiction that is equal to or less than the substance-based income exclusion amount as calculated in accordance with section 111AE and 111AX (in this section referred to as the ‘routine profits test’) in respect of constituent entities that are both—

(i) resident in that jurisdiction for the purposes of the qualified CbC report, and

(ii) located in that jurisdiction in accordance with section 111D.

(3) The simplified ETR of an MNE group in respect of a jurisdiction for a fiscal year shall be equal to an amount, expressed as a percentage, calculated in accordance with the formula:

(A/B) × 100

where—

(4) For the purposes of subsection (2), a net unrealised fair value loss shall be excluded from profit or loss before income tax if that loss exceeds €50,000,000 in respect of a jurisdiction for a fiscal year.

(5) For the purposes of the de minimis test, where a constituent entity is held for sale, its revenue for a fiscal year shall be aggregated with the revenue of the MNE group reported in its qualified CbC report for that fiscal year in respect of the jurisdiction in which the constituent entity is resident.

(6) For the purposes of subsection (2)(c), the routine profits test shall be deemed to be satisfied in a jurisdiction where the MNE group reports profit or loss before income tax that is zero or less than zero.

(7) Subsection (2) shall apply to a joint venture and joint venture affiliates as if they were constituent entities of a separate MNE group, subject to the profit or loss before income tax and total revenue of the joint venture and joint venture affiliates in respect of the fiscal year, and jurisdiction, concerned being the profit or loss before income tax and total revenue reported in their qualified financial statements.

(8) For the purposes of subsection (2)—

(a) subject to subsection (9), where an ultimate parent entity is a flow-through entity then the profit or loss before income tax and any associated taxes of the ultimate parent entity shall be reduced to the extent that such amount is attributable to an ownership interest held by a qualified person, and

(b) where an ultimate parent entity is subject to a deductible dividend regime within the meaning of section 111AR, then the profit or loss before income tax and any associated taxes of the ultimate parent entity shall be reduced to the extent that such amount is distributed in respect of an ownership interest held by a qualified person.

(9) Where an ultimate parent entity is a flow-through entity, subsection (2) shall not apply to an MNE group in respect of a jurisdiction where that ultimate parent entity is located unless all the ownership interests in the ultimate parent entity are held by qualified persons.

(10) Where an MNE group has not made an election to apply the transitional CbCR safe harbour in respect of a jurisdiction for a fiscal year where there is a constituent entity, joint venture or joint venture affiliate, as the case may be, of the MNE group located in that jurisdiction, then that MNE group shall not be permitted to elect to apply the transitional CbCR safe harbour in respect of that jurisdiction in any subsequent fiscal year.

(11) Notwithstanding anything in this section, the transitional CbCR safe harbour shall not apply to the following:

(a) a stateless constituent entity;

(b) a multi-parented MNE group where a single qualified CbC report does not include the information of the combined groups;

(c) a jurisdiction with constituent entities that are subject to an election made in accordance with section 111AS(1).

(12) Where the transitional CbCR safe harbour applies to an MNE group in respect of a jurisdiction for a fiscal year then—

(a) the transition year referred to in section 111AW(2) for an MNE group in respect of a jurisdiction shall be the first fiscal year where the transitional CbCR safe harbour no longer applies to that MNE group in respect of that jurisdiction,

(b) section 111AW(3) shall continue to apply to a constituent entity, joint venture or joint venture affiliates, as the case may be, of an MNE group located in that jurisdiction for that fiscal year, and

(c) the transition year referred to in section 111AW(4) for a transferring entity shall be the first fiscal year where the transitional CbCR safe harbour no longer applies to that transferring entity.

(13) (a) Subject to paragraph (b), for the purposes of subsection (2), an MNE group shall exclude from a jurisdiction an investment entity, and top-up tax in respect of such entity shall be calculated in accordance with Chapter 7.

(b) Paragraph (a) shall not apply where—

(i) the investment entity has not made an election in accordance with section 111AU(1) or 111AV(1), and

(ii) all the constituent entity owners of that entity are resident in the investment entity jurisdiction.

(c) Where paragraph (a) applies, an MNE group may apply the transitional CbCR safe harbour in respect of a jurisdiction in accordance with subsection (2) having regard to a constituent entity, joint venture or joint venture affiliate, as the case may be, that are not an investment entity.

(d) Where paragraph (a) does not apply, for the purposes of subsection (2)—

(i) the profit or loss before income tax and total revenue of an investment entity, and any associated taxes, shall be reflected only in the jurisdiction of its direct constituent entity-owners in proportion to their ownership interest in such entity, and

(ii) where a portion of the ownership interests of the investment entity is held by owners that are not members of the MNE group, the profit or loss before income tax attributable to such owners shall be excluded.

(14) All relevant information concerning the application of the transitional CbCR safe harbour shall be included in the top-up tax information return for the fiscal year in accordance with section 111AAI.