Finance (No. 2) Act 2023 · Updated to 29 Dec 2023 · Chapter 9
192. Effective Tax Rate Computation for Investment Entities
Feedback & supportThis section shall apply to Constituent Entities that meet the definition of an Investment Entity, except Investment
Investment Entity
“Investment Entity” means— (a) an Investment Fund or a Real Estate Investment Vehicle; (b) an Entity that is at least ninety-five per cent owned directly by an Entity described in paragraph (a) or through a chain of such Entities and that operates exclusively or almost exclusively to hold assets or invest funds for the benefit of such Investment Entities; and (c) an Entity where at least eighty-five per cent of the value of the Entity is owned by an Entity referred to in paragraph (a) provided that substantially all of the Entity’s income is Excluded Dividends or Excluded Equity Gain or Loss that is excluded from the computation of GloBE Income or Loss in accordance with paragraph 165(1)(b) or (c);
Entities that are Tax Transparent Entities or subject to an election under section 193 or 194.
The Effective Tax Rate for an Investment Entity that is a Constituent Entity shall be calculated separately from the
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;
Effective Tax Rate of the jurisdiction in which it is located.
The Effective Tax Rate for each such Investment Entity is equal to the Investment Entity’s Adjusted Covered Taxes divided by the Multinational Enterprise Group’s Allocable
Adjusted Covered Taxes
“Adjusted Covered Taxes” means an amount as determined under section 169;
Share of the Investment Entity’s GloBE Income determined under Chapter 5 of this Part.
If there is more than one Investment Entity located in the jurisdiction, the Adjusted Covered Taxes and the
Multinational Enterprise Group’s Allocable Share of each
Multinational Enterprise Group
“Multinational Enterprise Group” means any Group that includes at least one Entity or Permanent Establishment that is not located in the jurisdiction of the Ultimate Parent Entity; Finance (No. 2)
Investment Entity’s GloBE Income or Loss determined for each such Investment Entity are combined to compute the
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;
Effective Tax Rate of all such Investment Entities.
An Investment Entity’s Adjusted Covered Taxes is the sum of the Adjusted Covered Taxes determined for the Investment Entity under section 169 attributable to the
Multinational Enterprise Group’s Allocable Share of the
Investment Entity’s GloBE Income and the Covered Taxes allocated to the Investment Entity under section 170.
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;
The Investment Entity’s Adjusted Covered Taxes does not include any Covered Taxes accrued by the Investment Entity attributable to income that is not part of the Multinational
Enterprise Group’s Allocable Share of the Investment Entity’s
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);
GloBE Income.
Finance (No. 2)
The Multinational Enterprise Group’s Allocable Share of the Investment Entity’s GloBE Income is equal to the
Allocable Share of the Investment Entity’s GloBE Income or Loss that would be determined for the Ultimate Parent
Entity in accordance with the rules of subsection 162(2)
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;
taking into account only interests that are not subject to an election under section 193 or 194.
The Multinational Top-up Tax of a Constituent Entity that is an Investment Entity shall be an amount determined in accordance with the following formula:
Multinational Top-up Tax
“Multinational Top-up Tax” means tax computed for the jurisdiction or Constituent Entity in accordance with sections 175 to 179;
A x (B – C)
where
A is the Multinational Top-up Tax Percentage for the Investment Entity;
Multinational Top-up Tax Percentage
“Multinational Top-up Tax Percentage” means the percentage computed in accordance with section 175;
B is the Investment Entity’s GloBE Income;
and
C is the Substance-based Income Exclusion for the Investment Entity.
Substance-based Income Exclusion
“Substance-based Income Exclusion” means the jurisdictional payroll carve-out and the tangible asset carve-out for each Constituent Entity as determined under section 180;
The Multinational Top-up Tax Percentage for an
Investment Entity shall be the percentage point excess, if any, determined in accordance with the following formula:
(A – B)
where
A is the Minimum Rate; and
B is the Effective Tax Rate of the Investment
Entity.
If there is more than one Investment Entity located in the jurisdiction, the Investment Entity’s GloBE Income and the Substance-based Income Exclusion determined for each such Investment Entity are combined to compute the Multinational Top-up Tax Percentage of all such
Investment Entities.
Notwithstanding subsection 180(3), the Substance-based
Income Exclusion for an Investment Entity shall be determined in accordance with section 180, and by taking into account only Eligible Tangible Assets and Eligible Payroll Costs of
Eligible Tangible Assets
“Eligible Tangible Assets” means— (a) property, plant, and equipment located in that jurisdiction; (b) natural resources located in that jurisdiction; (c) a lessee’s right of use of tangible assets located in that jurisdiction; and (d) a licence or similar arrangement from the Government for the use of immovable property or exploitation of natural resources that entails significant investment in tangible assets;
Eligible Employees of the Investment Entities.
Eligible Employees
“Eligible Employees” means employees, including part-time employees, of a Constituent Entity that is a member of the Multinational Enterprise Group and independent contractors participating in the ordinary operating activities of the Multinational Enterprise Group under the direction and control of the Multinational Enterprise Group;
For the purposes of this section, “Multinational Enterprise
Group’s Allocable Share of the Investment Entity’s GloBE Income”
means an amount equal to the Allocable Share of the Investment
Entity’s GloBE Income or Loss that would be determined for the Ultimate Parent Entity in accordance with the rules of subsection 162(2) taking into account only interests that are not subject to an election under section 193 or 194.
Ultimate Parent Entity
“Ultimate Parent Entity” means either— (a) an Entity that— (i) owns directly or indirectly a Controlling Interest in any other Entity; and (ii) is not owned, with a Controlling Interest, directly or indirectly by another Entity; or (b) the Main Entity of a Group 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;