SolvedSection 170 | Adjustments for ultimate parent that is a flow-through entity
From legislation.gov.uk
(1)Where—F1
(a)the ultimate parent of a multinational group is a flow-through entity, and
(b)on determining its adjusted profits for an accounting period (ignoring this section), it has made a profit for that period,
those profits are to be further adjusted so as to exclude any amount of those profits that is qualifying.
(2)An amount of those profits is qualifying if—F2
(a)it represents an amount of those profits to which the holder of a direct ownership interest in the ultimate parent is entitled as a result of that interest, andF3F4
(b)condition A, B or C is met.
(2A)For the purposes of this section—F5
(a)each holder of a direct ownership interest in the ultimate parent is treated as entitled as a result of that interest to a proportion of the ultimate parent’s adjusted profits (that is to say, its adjusted profits ignoring this section), andF5
(b)the proportion of those adjusted profits to which each holder is treated as entitled is the proportion of those profits to which it would have been entitled had the actual amount of profits accruing to the ultimate parent been equal to its adjusted profits.F5
(3)Condition A is that the holder of the ownership interest is subject to tax on the amount for a taxable period that ends within 12 months of the accounting period mentioned in subsection (1)(b) and—F6
(a)the holder is subject to tax on the full amount of the ultimate parent’s profits to which it is entitled at a nominal rate equal to, or in excess of, 15%, or
(b)it is reasonable to expect that the sum of—
(i)the covered taxes payable by the ultimate parent in respect of the amount of the ultimate parent’s profits to which the holder is entitled, and
(ii)taxes payable by the holder of the ownership interest in respect of the amount of the ultimate parent’s profits to which the holder is entitled,
is equal to, or more than, 15% of the amount of the profits of the ultimate parent to which the holder of the interest is entitled.
(4)Condition B is that the holder of the ownership interest is an individual that—
(a)is tax resident in the territory of the ultimate parent, and
(b)does not hold ownership interests that together entitle the person to more than 5% of the profits and assets of the ultimate parent.
(5)Condition C is that the holder of the ownership interest is a governmental entity, an international organisation, a non-profit organisation or a pension fund that—
(a)is located in the territory of the ultimate parent, and
(b)does not hold ownership interests that together entitle that entity to more than 5% of the profits and assets of the ultimate parent.
(5A)Subsections (5B) and (5C) apply where—F7
(a)the holder of the ownership interest is not subject to tax on an amount of the ultimate parent’s profits for a taxable period that ends within 12 months of the accounting period mentioned in subsection (1)(b), andF7
(b)the holder would be subject to tax on the amount for a taxable period ending within that 12-month period but for a difference which will be eliminated over time between—F7
(i)the time when any income, expense, gain or loss is recognised in the ultimate parent’s financial statements, andF7
(ii)the time when that income, expense, gain or loss is reflected in the profits of the ultimate parent on which the holder is subject to tax (“the holder’s taxable profits”).F7
(5B)Condition A has effect, for each accounting period up to and including the period in which that timing difference is eliminated, as if the income, expense, gain or loss were instead reflected in the holder’s taxable profits in the taxable period in which it is recognised in the ultimate parent’s financial statements.F7
(5C)In a period for which, under subsection (5B), the holder’s taxable profits of a particular type are treated for the purposes of condition A as greater or less than what they actually are, it is to be assumed—F7
(a)that any excess is subject to tax at the same nominal rate at which the holder’s taxable profits of that type are actually subject to tax,F7
(b)that the holder pays tax on any excess at that rate,F7
(c)that any shortfall is not subject to tax, andF7
(d)that the holder pays no tax on any shortfall.F7
(6)Where the adjusted profits of the ultimate parent of a multinational group for an accounting period are reduced as a result of subsection (1), its covered tax balance (see section 174) is—
(a)in the case of a positive covered tax balance, to be reduced by the same proportion that the underlying profits were reduced, or
(b)in the case of a negative covered tax balance, to be increased by that same proportion.
(7)Where—
(a)the ultimate parent of a multinational group is a flow-through entity,
(b)on determining its adjusted profits for an accounting period (ignoring this section), it has made a loss for that period,
those profits are to be further adjusted so as to exclude any disqualified amount of that loss.
(8)An amount of that loss is disqualified if the holder of an ownership interest in the ultimate parent is allowed to use that amount in computing the holder’s taxable income.
(9)This section applies to a member of a multinational group as it applies to the ultimate parent if the member is—
(a)a permanent establishment through which the ultimate parent wholly or partly carries out its business, if the ultimate parent is a flow-through entity, or
(b)a permanent establishment through which the business of a flow-through entity is carried out, if —F8
(i)the entity is regarded as tax transparent in the territory in which the ultimate parent is located, andF8
(ii)the ultimate parent’s interest in that entity is held directly or through one or more entities all of which are regarded as tax transparent in that territory.F8