# Finance (No. 2) Act 2023, Section 195: Substance based income exclusion

Extent: E+W+S+N.I.

(1) The substance based income exclusion for a period for a territory is calculated by taking the following steps—
Step 1
Determine the payroll carve-out amount for that period for each standard member of the group in that territory.
Step 2
Determine the tangible asset carve-out amount for that period for each standard member of the group in that territory.
Step 3
Add together the amounts determined at steps 1 and 2.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) The payroll carve-out amount for a member is 5% of the eligible payroll costs incurred by the member in the period.
(5) The tangible asset carve-out amount for a member is 5% of the eligible tangible asset amount of the member in the period.
(6) Section 196 sets out how to calculate the eligible payroll costs of a member.
(7) Section 197 sets out how to calculate the eligible tangible asset amount of a member.
(7A) Section 197A sets out the treatment of operating leases.
(8) Section 198 supplements the rules in sections 196 and 197 in relation to a member that is a permanent establishment.
(9) Section 198ZA supplements the rules in sections 196 and 197 in relation to a member that is a flow-through entity.

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Source: https://www.legislation.gov.uk/ukpga/2023/30/section/195 (the official version)
Page: https://openlegislation.uk/finance-no-2-act-2023/section-195
Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.