MTT25220 - Calculating the effective tax rate: Covered tax balance: Intra-group distributions
In some cases, an amount of qualifying current tax expense must be reallocated between the members of a group as a result of an intra-group distribution. This requirement is set out in section 181 of Finance (No.2) Act 2023.
An amount of qualifying current tax expense must be allocated from “R” to “D” where:
- R and D are members of the same group,
- R has a direct ownership interest in D, and
- the underlying profits accounts of R reflect an amount of covered taxes accrued in respect of a distribution received by R from D.
See MTT17030 for guidance on ownership interests.
Meaning of ‘distribution received’
For this purpose, a ‘distribution received’ includes a deemed distribution that is taken into account where a tax is charged on a shareholder of an entity in respect of the undistributed earnings or capital of that entity.
Therefore, an amount of covered taxes accrued in respect of such a deemed distribution may still result in a reallocation, even though the distribution was not actually “received”.