Multinational Top-up Tax and Domestic Top-up Tax

MTT41450 - Particular entities and adjustments: Tax transparent entities: Exclusion of profits of flow-through entity where owner is not a group member

Where the following conditions are met, an amount of the profits of the flow-through entity (FTE) will be excluded from its adjusted profits:

• every ownership interest held in the FTE by a member of the group is a flow-through ownership interest (see MTT41440), and
• a person that is not a member of the group has an ownership interest in the FTE that is:
• direct, or
• held through a direct ownership interest in an entity, and a reference entity of the FTE that is a member of the group has an ownership interest in that entity.

The proportion of the underlying profits to be excluded is equal to the percentage ownership interest that the external investor has in the FTE.

This is set out in section 168(9) to (9A) of Finance (No.2) Act 2023.

Flow-through entity is a main entity

Where the FTE is a main entity of a permanent establishment under section 232(2)(a)-(c), its underlying profits will be attributed to the permanent establishment in accordance with section 159 of the Act (see MTT41025).

If a proportion of its underlying profits must be excluded in relation to an external investor, the amount should be excluded before any attribution from the FTE to the permanent establishment.