Taxes Consolidation Act 1997 section 111AW

Tax treatment of deferred tax assets, deferred tax liabilities and transferred assets upon transition

Section 111AW sets out the tax treatment of deferred tax assets, deferred tax liabilities and transferred assets upon transition to the Pillar Two rules, including grace period provisions for certain excluded deferred tax assets. For Finance Act 2025 section 95 updates, see commentary to section 111A.

• In the transition year and each subsequent year, all deferred tax assets and liabilities from the financial statements must be included in the effective tax rate calculation, measured at the lower of the minimum tax rate or the local tax rate (with qualifying loss DTAs uplifted to the minimum rate).
• Certain deferred tax assets are excluded from the calculation, including those linked to governmental arrangements or retroactive elections made after 30 November 2021, and those arising from new corporation-tax-type regimes enacted after that date but before the transition year.
• A grace period allows limited use of excluded deferred tax assets — up to 20 per cent of their original value per year — but this relief does not apply to arrangements entered into or changes made after 18 November 2024.
• Where assets (other than inventory) are transferred between group entities after 30 November 2021 but before the transition year, the receiving entity must use the transferring entity's carrying value, with deferred tax assets and liabilities adjusted accordingly.

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