MTT62910 - Charging mechanisms: Undertaxed Profits Rule: Transitional provisions: Transitional safe harbour for the UTPR

The UTPR transitional safe harbour allows a group to elect that the members in the ultimate parent’s territory do not have an untaxed amount, where the nominal tax rate in the ultimate parent’s territory is 20% or greater.

The safe harbour is set out in Part 2A of Schedule 16 of Finance (No.2) Act 2023.

Conditions

For an election into the safe harbour to be valid, the following conditions must be met:

  • the corporate income tax (CIT) rate in the territory of the ultimate parent must be at least 20%, and
  • the period must:
    • be no longer than 12 months,
    • commence on or before 31 December 2025, and
    • end before 31 December 2026.

Corporate income tax rate

The CIT in a territory may be levied by authorities at a number of different levels of government. For example, a national or federal CIT rate may be supplemented by a CIT rate charged at the level of a state or province. In these cases, when determining the CIT rate, a group should include:

  • the nominal national or federal rate
  • the lowest nominal rate that generally applies across the states, provinces, or cantons

Otherwise, the generally applicable nominal rate will be the CIT rate.

Effect of making an election

Where a group makes a valid election, the untaxed amounts of all members of the group in the ultimate parent’s territory is deemed to be nil for the period.

Additionally, where a joint venture group has its joint venture parent located in the ultimate parent’s territory, the untaxed amounts of that joint venture group are deemed to be nil in relation to the group making the election. This includes joint venture subsidiaries that are located outside the ultimate parent’s territory.

The group may still have untaxed amounts arising for members located outside of the ultimate parent’s territory.