Finance (No. 2) Act 2023 · Updated to 29 Dec 2023 · Chapter 6
169. Adjusted Covered Taxes
Feedback & supportThe Adjusted Covered Taxes of a Constituent
Adjusted Covered Taxes
“Adjusted Covered Taxes” means an amount as determined under section 169;
Entity for the Financial Year shall be equal to the current tax expense accrued in its Financial Accounting Net Income or Loss with respect to Covered Taxes for the Financial Year adjusted by—
Entity
“Entity” means— (a) any legal person (other than a natural person); or (b) an arrangement that prepares separate financial accounts, such as a partnership or trust;
the net amount of its Additions to Covered Taxes for the Financial Year and Reductions to Covered
Taxes for the Financial Year;
the Total Deferred Tax Adjustment Amount as determined under section 171; and
any increase or decrease in Covered Taxes recorded in equity or Other Comprehensive Income relating to amounts included in the computation of GloBE
Income or Loss that will be subject to tax under local tax rules.
No amount of Covered Taxes may be taken into account more than once.
Covered Taxes
“Covered Taxes” means— (a) taxes recorded in the financial accounts of a Constituent Entity with respect to its income or profits or its share of the income or profits of a Constituent Entity in which it owns an Ownership Interest; (b) taxes on distributed profits, deemed profit distributions, and non-business expenses imposed under an Eligible Distribution Tax System; (c) taxes imposed in lieu of a generally applicable corporate income tax; and (d) taxes levied by reference to retained earnings and corporate equity, including a Tax on multiple components based on income and equity, Finance (No. 2) but does not include any amount of— (a) Multinational Top-up Tax accrued by a Parent Entity under a Qualified Income Inclusion Rule; (b) Qualified Domestic Top-up Tax accrued by a Constituent Entity; (c) taxes attributable to an adjustment made by a Constituent Entity as a result of the application of a set of rules equivalent to Articles 2.4 to 2.6 of the GloBE Model Rules (including any provisions of the GloBE Model Rules associated with those articles) that are included in the domestic law of a jurisdiction and that are implemented and administered in a way that is consistent with the outcomes provided for under the GloBE Model Rules provided that such jurisdiction does not provide any benefits that are related to such rules; (d) a Disqualified Refundable Imputation Tax; (e) taxes paid by an insurance company in respect of returns to policy holders;
In a Financial Year in which there is no Net GloBE
Financial Year
“Financial Year” means an accounting period with respect to which the Ultimate Parent Entity of the Multinational Enterprise Group prepares its Consolidated Financial Statements and in the case of Consolidated Financial Statements as defined in paragraph (d) of the definition of “Consolidated Financial Statements”, Financial Year means the calendar year;
Income for a jurisdiction, if the Adjusted Covered Taxes for a jurisdiction are less than zero and less than the Expected
Adjusted Covered Taxes Amount the Constituent Entities in that jurisdiction shall be treated as having Additional
Current Multinational Top-up Tax for the jurisdiction under section 181 arising in the current Financial Year equal to the difference between these amounts.
Multinational Top-up Tax
“Multinational Top-up Tax” means tax computed for the jurisdiction or Constituent Entity in accordance with sections 175 to 179;
For the purposes of subsection (3) the Expected Adjusted
Covered Taxes Amount is equal to the GloBE Income or Loss for a jurisdiction multiplied by the Minimum Rate.
GloBE Income or Loss
“GloBE Income or Loss” means the Financial Accounting Net Income or Loss determined for the Constituent Entity for the Financial Year adjusted for the items described in sections 165 to 168 of each Constituent Entity;
For the purposes of paragraph 1(a), “Additions to
Covered Taxes” means the sum of—
any amount of Covered Taxes of a Constituent Entity for the Financial Year accrued as an expense in the profit before taxation in the financial accounts;
any amount of GloBE Loss Deferred Tax Asset of a Constituent Entity for the Financial Year used under subsection 172(6);
any amount of Covered Taxes of a Constituent Entity for the Financial Year that is paid in the Financial
Year and that relates to an uncertain tax position where that amount has been treated for a previous
Financial Year as a Reduction to Covered Taxes under paragraph (6)(d) of the definition of “Reductions to Covered Taxes”; and
Finance (No. 2)
any amount of credit or refund of a Constituent Entity for the Financial Year in respect of a Qualified
Refundable Tax Credit that is recorded as a reduction to the current tax expense.
In this section, “Reductions to Covered Taxes” means the sum of—
the amount of current tax expense with respect to income excluded from the computation of GloBE
Income or Loss under Chapter 5 of this Part;
any amount of credit or refund in respect of a Non-Qualified Refundable Tax Credit that is not recorded as a reduction to the current tax expense;
any amount of Covered Taxes refunded or credited, except for any Qualified Refundable Tax Credit, to a Constituent Entity that was not treated as an adjustment to current tax expense in the financial accounts;
the amount of current tax expense which relates to an uncertain tax position; and
any amount of current tax expense that is not expected to be paid within three years of the last day of the
Financial Year.