MTT01100 - Introduction: Overview of Multinational Top-up Tax

Multinational Top-up Tax is a top-up tax that will be charged on members of the largest multinational groups where they do not meet the minimum effective tax rate (ETR) in each territory in which they operate. The minimum rate is 15%.

The amount of the charge will be the amount required to raise the ETR for that territory to the minimum rate. This is why it is described as a ‘top-up tax’. In order to achieve the top-up, MTT operates and is a separate charge to tax in its own right, rather than being an extension of the charge to tax under pre-existing heads of taxation.

In the UK, the charge will be collected through both Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT). This guidance manual will apply to both of these taxes, unless otherwise specified.

Multinational Top-up Tax includes both the standard mechanism for collecting the charge (the Income Inclusion Rule), as well as the Undertaxed Profits Rule (UTPR), which works as a backstop. The primary legislation for MTT can be found in Part 3 of Finance (No.2) Act 2023.

See MTT65010 for an overview of Domestic Top-up Tax.

Scope

A multinational group will be in scope of MTT where it has annual revenue exceeding €750m in any two out of the four periods preceding the tested period, according to the group’s consolidated financial statements. See MTT11010 for guidance on the revenue threshold test.

Some entities in a qualifying group will satisfy the criteria for being an excluded entity (see MTT10200). These entities will be excluded from the MTT calculations.

Wholly-domestic groups cannot be in scope of MTT but can be in scope of Domestic Top-up Tax.

De minimis exclusion

The top-up amount for a territory is deemed to be nil if, for that territory:

  • average revenue is less than €10 million, and
  • average profit is less than €1 million.

The amounts are averaged over the three accounting periods ending with the tested period.

Determining the effective tax rate

To determine if a top-up amount is due for a territory the ETR for each territory must be calculated. The rate is expressed as a percentage and is determined by the following computation:

  • covered tax balance,

divided by

  • adjusted profits.

The ETR is calculated for each accounting period. The accounting periods of the group’s Consolidated Financial Statements are used.

Adjusted profits

Adjusted profits is the denominator in the ETR computation. To arrive at this figure, we start with the underlying profits, which are generally the profits in the group’s Consolidated Financial Statements. A series of adjustments are then made to determine the adjusted profits.

In some cases, the underlying profits can be taken from the accounts of a member of the group.

Covered tax balance

Covered tax balance is the numerator in the ETR computation. This includes the net amount of covered taxes attributable to the income earned in the tested period.

The covered taxes include taxes on profit, but do not include indirect taxes, payroll, or property taxes. However, a tax in lieu of a corporate income tax, such as tonnage tax, will be a covered tax.

Adjustments are made for some permanent differences, such as amounts relating to income excluded from the adjusted profits. Temporary differences are adjusted for by using deferred tax accounting.

Substance-based income exclusion

Groups are allowed a deduction in proportion to the amount of tangible assets and payroll expense they have in a territory. This deduction corresponds to the estimated return on investment which the group might expect from those assets and employees.

The deduction is made from the net profits of the territory when determining the amount of top-up tax chargeable. It does not have an effect on the ETR.

Special provisions

Special provisions apply to certain entities, groups, and sectors, including:

  • joint ventures and their subsidiaries
  • transparent entities
  • permanent establishments
  • investment entities and investment funds
  • minority owned members
  • international shipping
  • stateless entities

Special provisions also apply where there is a merger or demerger.

There are also special rules for the period in which a group first becomes a qualifying group.

Chargeability

The top-up charge is calculated on the level of a group for each territory in which it operates. However, the tax is charged to individual members of the group.

The allocation key for charging top-up amounts is different for DTT compared to MTT.

The Undertaxed Profits Rule (UTPR) is a separate charging mechanism which works as backstop for uncollected amounts.

See MTT61020 for guidance on identifying chargeable persons for MTT, MTT31100 for the DTT allocation key, MTT62000+ for guidance on the UTPR, and MTT54000+ for guidance on payments.

Administration

Multinational groups which are in scope and have a member in the UK must register for MTT with HMRC. They must file information returns and self-assessment returns.

MTT is applied to groups, but a single ‘filing member’ will be responsible for most administrative obligations. If the ultimate parent does not nominate a filing member, the ultimate parent will be the filing member by default.

See MTT50000+ for further information on administration of MTT.