Multinational Top-up Tax and Domestic Top-up Tax

MTT01210 - Introduction: Differences between Domestic Top-up Tax and Multinational Top-up Tax

This page provides a summary of the differences between Domestic Top-up Tax and Multinational Top-up Tax.

For a table showing all differences, see MTT09960.

Chargeability

Although the calculation of tax amounts is broadly similar between MTT and DTT, the chargeability rules are quite different.

In DTT, there is no concept of 'responsible members', and consequently no concept of the inclusion ratio. Generally, each qualifying entity will be chargeable.

However, the group may elect for a single member to be liable for the DTT charge for all members of the group.

The allocation of top-up amounts between members is also different under DTT, which has its own allocation key.

See MTT65000 for further guidance on DTT chargeability.

Scope

The revenue threshold test applies for DTT in broadly the same way as it does for MTT. However, only specific entities (“qualifying entities”) are determined to be in scope of DTT, rather than the group as a whole.

There is no requirement that a qualifying entity be part of a multinational group. Therefore, if a wholly domestic group would be in scope of MTT but for the fact that it does not have any foreign entities, then it will be in scope of DTT.

Any references in the guidance to multinational groups should be considered to include wholly domestic groups in the context of DTT.

It is also possible for an individual entity to be in scope of DTT. In such a case, references to a group, members of a group, or the filing member of a group, should be considered to be references to the individual entity.

Scope – excluded entities

Securitisation companies are excluded entities for DTT purposes only.

Investment entities and qualifying transformer vehicles are excluded entities for wholly-domestic groups and entities.

See MTT10030 for guidance on DTT excluded entities.

Elections

Any election that applies in respect of MTT (or an equivalent foreign version of the Income Inclusion Rule) also has effect for DTT, if the election would have an effect on the top-amount calculated for DTT.

For example, if an investment entity tax transparency election has been made in respect of an investment entity located in the UK, its profits should be allocated to its owners for the purposes of both DTT and MTT.

Election for wholly domestic group to use UK GAAP

A group can use UK GAAP as an alternative accounting standard to determine the underlying profits and covered tax balance of its members if:

• All the group members are located in the UK, and
• The filing member has made a long-term election that the underlying profits of group members are to be determined on the basis of UK GAAP.

The group does not need to meet the other conditions usually required to use an alternative accounting standard.

Allocation of cross-border taxes

Sections 177 to 181 are modified for the purposes of DTT. These modifications limit the extent to which taxes charged by a foreign territory can be reflected in the ETR of the UK members of the group.

In particular, taxes charged under a CFC rule applied by a foreign territory on a UK entity or by a foreign territory on the profits of a permanent establishment in the UK are not treated as covered taxes in the DTT ETR calculation. Additionally, taxes charged on distributions of profits from UK members are similarly not allocated to the UK distributing member.

The exception is taxes charged on a partnership where the UK member is a partner in the partnership. These taxes continue to be reallocated according to subsection 178(1). This enables taxes suffered by the partnership on partnership source income (such as a withholding tax) to still be reflected in the ETR of the partners. This prevents double taxation of this income while respecting the existing allocation of taxing rights between the relevant territories.

Restriction on reallocation of tax expense in respect of mobile income

For DTT purposes, there is no restriction on the reallocation of qualifying current tax expense in respect of mobile income. Subsections 178(2) and 179(2) are omitted.

Consequently, where taxes paid by UK entities would be reallocated to another territory for the purposes of MTT, the full amount will be excluded from the DTT calculations of the relevant qualifying entities. Under MTT, the CFC and hybrid taxes to which the mobile income restriction applies will not be reallocated and remain as covered taxes of the parent or owner member.

Qualifying refundable tax credits

Amounts of expense relating to qualifying refundable tax credits are not to be excluded from the deferred tax expense (see MTT27150).

Investment entity top-up amounts included in calculation of top-up amounts

For DTT purposes, the total top-up amount that is allocated between the standard members under section 193 will include the top-up amounts and additional top-up amounts of investment entities. This ensures that investment entities will not be liable for any top-up amounts, thus preserving the tax neutrality of investment entities.

Deemed distribution tax election

The UK does not have an eligible distribution tax system, so the deemed distribution tax election will not be relevant for DTT.

However, when using tie-breakers to determine the location of a dual-resident entity (see MTT18020), an eligible distribution tax will still be a covered tax.

QDT crediting

When determining the top-up amount under DTT, or additional top-up amounts, there is no crediting of qualifying domestic minimum top-up taxes (including DTT and foreign equivalents). Those parts of the MTT legislation are omitted for DTT purposes.

Administration

DTT is generally administered in the same way as MTT, with some exceptions. See MTT50200 for further guidance on the administration of DTT.