Taxes Consolidation Act 1997 section 111AA

Rules required for blended CFC regime

Section 111AA sets out how taxes arising under a blended Controlled Foreign Company (CFC) tax regime are to be allocated from a parent entity to its foreign subsidiaries for the purposes of the Pillar Two minimum tax rules.

• A blended CFC tax regime is one that combines the income, losses, and creditable taxes of all a parent company's foreign subsidiaries to calculate the parent's CFC tax liability, and applies where the applicable tax rate is below 15 per cent.
• For fiscal years beginning on or before 31 December 2025 (but not including a fiscal year ending after 30 June 2027), a specific formula allocates the parent's blended CFC tax charge across its foreign subsidiaries based on each subsidiary's share of income and the gap between the applicable rate and the subsidiary's jurisdictional effective tax rate.
• Where a subsidiary's jurisdictional effective tax rate equals or exceeds the applicable rate or the minimum tax rate, no blended CFC tax is allocated to that subsidiary — its allocation key is deemed to be zero.
• The jurisdictional effective tax rate is calculated without regard to covered taxes under a CFC regime, but includes any income tax expense attributable to a qualified domestic top-up tax where the blended CFC regime allows a foreign tax credit for that top-up tax.

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