Paragraph 33 Substance based income exclusion: permanent establishments and flow-through entities

For section 198 (eligible payroll costs and eligible tangible asset amount: permanent establishments and flow-through entities) substitute—

“Eligible payroll costs and eligible tangible asset amount: permanent establishments

198

(1)

Sections 196 and 197 apply in relation to permanent establishments with the following modifications.

(2)

In determining under section 196 the eligible payroll costs of a permanent establishment within section 232(2)(a) to (c), the only amounts to be taken into account are amounts that would be taken into account in determining the adjusted profits of the establishment.

(3)

In determining under section 197 the eligible tangible asset amount of a permanent establishment within section 232(2)(a) to (c), the only assets to be taken into account are assets used in the business of the establishment.

(4)

Both the eligible payroll costs and the eligible tangible asset amount of a permanent establishment within section 232(2)(d) are nil.

(5)

If but for this subsection—

(a)

an amount would be taken into account under section 196 in respect of both a permanent establishment and the main entity, or

(b)

an asset would be taken into account under section 197 in respect of both a permanent establishment and the main entity,

the amount or asset is only to be taken into account in respect of the permanent establishment.

Eligible payroll costs: flow-through entities

198ZA

(1)

A member of a multinational group that is a flow-through entity has a flow-through payroll amount for a territory for an accounting period if the member has costs that would be eligible payroll costs if the member were located in that territory and were not a flow-through entity and—

(a)

there is at least one other member of the group—

(i)

that is not a flow-through entity,

(ii)

that is located in that territory, and

(iii)

to whom a proportion of the underlying profits of the flow-through entity for the accounting period are allocated under section 168 (underlying profits of transparent entities) or, where the underlying profits of the entity are nil or less, would be so allocated if the flow-through entity had underlying profits of 100 euros, or

(b)

the entity—

(i)

is a flow-through entity to some extent for that period as a result of section 169 (certain non tax resident entities to be treated as flow-through entities),

(ii)

is not a flow-through entity to some extent for that period, and

(iii)

was created in that territory.

(2)

Section 196 applies for the purposes of determining a flow-through payroll amount of a flow-through entity for a territory as it applies for the purposes of determining eligible payroll costs but as if—

(a)

any reference in that section to the territory of the member were to the territory to which the flow-through payroll amount relates, and

(b)

subsection (7) of that section were omitted.

(3)

Where a member of a multinational group that is a flow-through entity has a flow-through payroll amount for a territory for an accounting period, the eligible payroll costs of each member of the group falling within subsection (1)(a) for that period (which may be nil) are to be increased by the amount given by multiplying the flow-through payroll amount by the relevant proportion in relation to that member for that period.

(4)

The relevant proportion in relation to a member for an accounting period is the proportion of the underlying profits of the flow-through entity for that period—

(a)

in a case where the flow-through entity has underlying profits that exceed nil for that period, that is allocated to that member under section 168, or

(b)

in a case where the underlying profits of the flow-through entity for that period are nil or less, that would be allocated to that member if the flow-through entity had underlying profits of 100 euros.

(5)

Where a flow-through entity—

(a)

is a flow-through entity to some extent for an accounting period as a result of section 169,

(b)

is not a flow-through entity to some extent for that period, and

(c)

was created in a territory for which it has a flow-through payroll amount for that period,

the eligible payroll costs of that entity for that period (which may be nil) are to be increased by the amount given by multiplying that flow-through payroll amount by the relevant proportion in relation to that entity for that period.

(6)

The relevant proportion in relation to that entity for an accounting period is the proportion of the underlying profits of the entity for that period—

(a)

in a case where the entity has underlying profits that exceed nil for that period, that are not allocated to any other entity under section 168, or

(b)

in a case where the underlying profits of the entity for that period are nil or less, that would not be allocated to any other entity under that section if the entity had profits of 100 euros.

(7)

For the purposes of applying this section in relation to a multinational group whose ultimate parent is a flow-through entity, the ultimate parent is to be treated as not being a flow-through entity.

Eligible tangible asset amount: flow-through entities

198ZB

(1)

A member of a multinational group that is a flow-through entity that is not the ultimate parent has a flow-through tangible asset amount for a territory for an accounting period if the member holds one or more assets in that territory and—

(a)

there is at least one other member of the group—

(i)

that is not a flow-through entity,

(ii)

that is located in that territory, and

(iii)

to whom a proportion of the underlying profits of the flow-through entity for the accounting period are allocated under section 168 (underlying profits of transparent entities) or, where the underlying profits of the entity are nil or less, would be so allocated if the flow-through entity had underlying profits of 100 euros, or

(b)

the entity—

(i)

is a flow-through entity to some extent for that period as a result of section 169 (certain non tax resident entities to be treated as flow-through entities),

(ii)

is not a flow-through entity to some extent for that period, and

(iii)

was created in that territory.

(2)

Sections 197 and 197A apply for the purposes of determining a flow-through tangible asset amount of a flow-through entity for a territory as they apply for the purposes of determining an eligible tangible asset amount but as if—

(a)

any reference in those sections to the territory of the member were to the territory to which the flow-through tangible asset amount relates, and

(b)

subsection (10) of section 197 were omitted.

(3)

Where a member of a multinational group that is a flow-through entity has a flow-through tangible asset amount for a territory for an accounting period, the eligible tangible asset amount of each member of the group falling within subsection (1)(a) for that period (which may be nil) is to be increased by the amount given by multiplying the flow-through tangible asset amount by the relevant proportion in relation to that member for that period.

(4)

The relevant proportion in relation to a member for an accounting period is the proportion of the underlying profits of the flow-through entity for that period—

(a)

in a case where the flow-through entity has underlying profits that exceed nil for that period, that is allocated to that member under section 168, or

(b)

in a case where the underlying profits of the flow-through entity for that period are nil or less, that would be allocated to that member if the flow-through entity had underlying profits of 100 euros.

(5)

Where a flow-through entity—

(a)

is a flow-through entity to some extent for an accounting period as a result of section 169,

(b)

is not a flow-through entity to some extent for that period, and

(c)

was created in a territory for which it has a flow-through tangible asset amount for that period,

the eligible tangible asset amount of that entity for that period (which may be nil) is to be increased by the amount given by multiplying that flow-through tangible asset amount by the relevant proportion in relation to that entity for that period.

(6)

The relevant proportion in relation to that entity for an accounting period is the proportion of the underlying profits of the entity for that period—

(a)

in a case where the entity has underlying profits that exceed nil for that period, that are not allocated to any other entity under section 168, or

(b)

in a case where the underlying profits of the entity for that period are nil or less, that would not be allocated to any other entity under that section if the entity had profits of 100 euros.

(7)

For the purposes of applying this section in relation to a multinational group whose ultimate parent is a flow-through entity, the ultimate parent is to be treated as not being a flow-through entity.

Eligible payroll costs and eligible tangible asset amount: flow-through ultimate parent

198ZC

(1)

In determining for an accounting period the eligible payroll costs or eligible tangible asset amount of a flow-through entity that is the ultimate parent of a multinational group, the amount given by section 196 or 197 is to be reduced by the section 170 proportion.

(2)

In subsection (1), “the section 170 proportion” means the proportion of the adjusted profits of the flow-through entity for the accounting period that—

(a)

in a case where subsection (1) of 170 (adjustments for ultimate parent that is a flow-through entity) applies, is excluded under that subsection, or

(b)

in a case where that subsection does not apply as a result of the entity having not made a profit for that period, would be excluded under that subsection if the entity had adjusted profits of 100 euros.

(3)

In subsection (2), “the adjusted profits” means the adjusted profits before the application of section 170.”