Section 196 | Eligible payroll costs

(1)The eligible payroll costs of a member for a period are all costs incurred by the member in the period in connection with the employment of an employee of that member, provided that—

(a)the employee is an individual,

(b)Repealed^F1

(c)at least some of the work is carried out in the territory in which the member is located, ...^F2F3

(d)the costs are not excluded costs , and^F4

(e)the filing member chooses to include those costs in calculating the substance based income exclusion for the period.^F4

(1A)But where—^F5

(a)an employee carries out the work in the period both in the territory in which the member is located and outside that territory, and^F5

(b)the proportion of the time spent carrying out the work in that territory in the period is 50% or less,^F5

the payroll costs in respect of the employee are to be multiplied by that proportion to determine how much of those costs are eligible payroll costs.

(2)The costs may include in particular—

(a)salaries, wages and other expenditures that provide a direct and personal benefit to the employee,

(b)payroll and other employment taxes payable by the member, and

(c)social security contributions payable by the member.

(3)In this section “employee” means—^F6

(a)a person regarded as an employee under the law of the territory in which the member is located, and

(b)any other person while they are participating in the ordinary operating activities of the member (including on a part-time basis),^F7

and “employment” is to be construed accordingly.

(4)“Excluded costs” are the following—

(a)costs taken into account in determining the underlying profits of a permanent establishment of the member;

(b)costs taken into account in a carrying value used to calculate the eligible tangible asset amount (see section 197);

(c)costs that are core international shipping costs (see section 157);

(d)costs that are ancillary international shipping costs (see section 158), subject to subsections (5) and (6).

(5)Where the member has an ancillary international shipping profit cap adjustment of more than nil for the period, only the eligible proportion of costs that are ancillary international shipping costs are excluded costs.

(6)The eligible proportion is the proportion given by dividing—

(a)the member’s ancillary international shipping profits for the period, by

(b)the amount given by subtracting the member’s ancillary international shipping costs from the member’s ancillary international shipping revenue for the period.

(7)A member of a multinational group that is a flow-through entity that is a responsible member of the group but which is not the ultimate parent is to be regarded as having nil eligible payroll costs (subject to the application of section 198ZA).^F8