Finance (No. 2) Act 2023 · Updated to 29 Dec 2023 · Chapter 7
174. Determination of Effective Tax Rate
Feedback & supportThe Effective Tax Rate of the Multinational Enterprise
Effective Tax Rate
“Effective Tax Rate” means, in respect of a Multinational Enterprise Group, the sum of the Adjusted Covered Taxes of each Constituent Entity located in the jurisdiction divided by the Net GloBE Income of the jurisdiction for the Financial Year;
Group for a jurisdiction with Net GloBE Income shall be calculated for each Financial Year.
Group
“Group” means— (a) a collection of Entities that are related through ownership or control such that the assets, liabilities, income, expenses and cash flows of those Entities are— (i) included in the Consolidated Financial Statements of the Ultimate Parent Entity; or Finance (No. 2) (ii) excluded from the Consolidated Financial Statements of the Ultimate Parent Entity solely on size or materiality grounds, or on the grounds that the Entity is held for sale; or (b) an Entity that is located in one jurisdiction and has one or more Permanent Establishments located in other jurisdictions provided that the Entity is not a part of another Group mentioned in paragraph (a);
The Effective Tax Rate of the Multinational Enterprise
Group for a jurisdiction is an amount determined in accordance with the following formula:
A
B where
A is the sum of the Adjusted Covered Taxes of each Constituent Entity located in the jurisdiction for the Financial Year; and
Adjusted Covered Taxes
“Adjusted Covered Taxes” means an amount as determined under section 169;
B is the Net GloBE Income of the jurisdiction for the Financial Year.
Net GloBE Income
“Net GloBE Income” means the amount as determined in accordance with subsection 174(4);
For the purposes of this Chapter, each Stateless
Constituent Entity shall be treated as a single Constituent
Constituent Entity
“Constituent Entity” means— (a) any Entity that is included in a Group; or (b) any Permanent Establishment of a Main Entity that is within paragraph (a) and which is treated as separate from the Main Entity and any other Permanent Establishment of that Main Entity, but does not include an Excluded Entity;
Entity located in a separate jurisdiction.
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 GloBE Income of a jurisdiction for a Financial
Year is the positive amount, if any, computed in accordance with the following formula:
A – B where
A is the GloBE Income of all Constituent
Entities, being the sum of the GloBE
Income of all Constituent Entities located in the jurisdiction determined in accordance with Chapter 5 of this Part for the
Financial Year; and
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;
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B is the GloBE Losses of all Constituent
Entities, being the sum of the GloBE Losses of all Constituent Entities located in the jurisdiction determined in accordance with
GloBE Losses of all Constituent Entities
“GloBE Losses of all Constituent Entities” means the sum of the GloBE Losses of all Constituent Entities located in the jurisdiction determined in accordance with Chapter 5 of this Part for the Financial Year;
Chapter 5 of this Part for the Financial Year.
The adjusted Covered Taxes and GloBE Income or
Loss of Constituent Entities that are Investment Entities and
Insurance Investment Entities are excluded from the determination of the Effective Tax Rate in subsections (1) to (3)
and the determination of Net GloBE Income in subsection (4).