Paragraph 46 Transitional safe harbour

United Kingdom

(1)

Part 2 of Schedule 16 (transitional safe harbour) is amended as follows.

(2)

In paragraph 3 (election)—

(a)

in sub-paragraph (1), after “election” insert “under this paragraph”,

(b)

in sub-paragraph (2)(c), for “the election” substitute “a transitional safe harbour election”,

(c)

in sub-paragraph (7), for “the information” substitute “all relevant information”,

(d)

after that sub-paragraph insert—

“(7A)

For the purposes of sub-paragraph (7), “all relevant information” means all of the information described in paragraphs (a) to (d) of paragraph 4(3).”, and

(e)

after sub-paragraph (9) insert—

“(10)

An election under this paragraph may not be made in respect of the nominal territory of a stateless member of a multinational group.”

(3)

In paragraph 4 (qualified financial statements), in sub-paragraph (1)—

(a)

in paragraph (a)—

(i)

for “statement” substitute “statements”, and

(ii)

after “parent” insert “provided the statements are prepared in accordance with acceptable accounting standards or an authorised accounting standard”, and

(b)

for paragraph (b) substitute—

“(b)

financial statements of members of the group provided—

(i)

they are prepared in accordance with acceptable accounting standards or an authorised accounting standard, and

(ii)

the information contained in those statements is reliable and is maintained in a manner that is consistent with its use under the accounting standard used in preparing those statements.”

(4)

In paragraph 4, after sub-paragraph (1) insert—

“(1A)

But see also paragraph 4A in cases where those accounts or statements reflect purchase price accounting adjustments.”

(5)

In paragraph 4, in sub-paragraph (3), in paragraph (d), after “income” insert “exclusion”.

(6)

After paragraph 4 insert—

“Accounts or statements reflecting purchase price accounting adjustments

4A

(1)

This paragraph applies in relation to accounts or financial statements (“the relevant statements”) in relation to a multinational group in a territory that—

(a)

fall within paragraph (a) or (b) of paragraph 4(1), and

(b)

reflect purchase price accounting adjustments.

(2)

If—

(a)

a country-by-country report has been submitted in respect of the group in that territory in respect of a period commencing on or after 1 January 2023 and concluding before the commencement of the accounting period for which the transitional safe harbour election is being made,

(b)

the financial accounts used for the preparation of that report did not reflect purchase price accounting adjustments, and

(c)

there is no requirement to reflect purchase price adjustments in the relevant statements under the law of the territory that applies in relation to the preparation of those statements,

the relevant statements are not qualified financial statements.

(3)

Sub-paragraph (4) applies if—

(a)

the relevant statements are qualified financial statements, and

(b)

an impairment of goodwill in relation to a transaction entered into on or after 1 December 2021 is reflected in a member’s profit (loss) before income tax.

(4)

Adjust the profit (loss) before income tax of the member so that it does not reflect that impairment for the purposes of determining—

(a)

in a case where the condition in sub-paragraph (5) is not met, whether the simplified effective tax rate test is met (see paragraph 8), and

(b)

in any case, whether the routine profits test is met (see paragraph 9).

(5)

The condition in this sub-paragraph is that the relevant statements reflect—

(a)

a reversal of deferred tax liability in relation to the goodwill, or

(b)

the recognition or increase of a deferred tax asset in relation to it.”

(7)

In paragraph 5 (qualifying income tax expense)—

(a)

the existing text becomes sub-paragraph (1), and

(b)

after that sub-paragraph insert—

“(2)

For the purposes of this Part of this Schedule, any amount of qualifying income tax expense that is in respect of profits of a permanent establishment and that is incurred in the territory of the permanent establishment is to be regarded as the expense of that permanent establishment (rather than of the main entity).”