MTT15910 - Scope: Safe harbours: Transitional safe harbour: Overview

The transitional safe harbour allows groups to use figures calculated for the purposes of Country-by-Country Reporting (CbCR) to assess whether they are likely to face a top-up tax under Multinational Top-up Tax (MTT) for a territory. If these simplified calculations indicate that there would be no top-up tax chargeable, the group is treated as having no tax charge and does not have to undertake the full effective tax rate calculations.

The transitional safe harbour aims to reduce the compliance obligations for groups in the first years of the regime.

This is set out in Part 2, Schedule 16 to Finance (No.2) Act 2023.

Use of Country-by-Country Reporting (CbCR)

The scope of MTT was intended to align as closely as possible to that of Country-by-Country Reporting (see IEIM300000). In most instances, multinational groups that qualify for MTT will also be obliged to complete a CbC Report.

The calculations required by the safe harbour mainly rely on the figures already determined for the CbC Report, so most groups will not suffer significant additional compliance obligations when assessing whether they qualify for the safe harbour.

See MTT15930 for guidance on the source of data.

Design of the safe harbour

The safe harbour applies on a territory-by-territory basis and consists of three tests. A group will qualify for the safe harbour in a territory as long as one of these tests are met:

  • the threshold test (see MTT15940), which is similar to the de minimis test in the main part of the rules.
  • the simplified effective tax rate test (see MTT15950), which gives an approximation of the effective tax rate.
  • the routine profits test (see MTT15960), which assesses whether the substance based income exclusion (SBIE) would cover any profits made in the territory.

These tests approximate the calculations that would be required for MTT. If any one of the three tests are met for the territory, this indicates that there would be no top-up tax chargeable under MTT in the accounting period.

See MTT15935 for guidance on adjustments made to the figures, which ensure the tests provide a more valid approximation of the outcomes that would have arisen had the full MTT computations been made for that jurisdiction.

See MTT15920 for other conditions for the safe harbour.

Effect of the safe harbour

Where the transitional safe harbour applies to a territory:

  • the members of that territory are treated as not having top-up amounts or additional top-up amounts for that period, and
  • the Pillar Two rules are not considered to apply to those members for those periods.

See MTTxxxxx for guidance on the meaning of Pillar Two rules applying.

Example

An intra-group transfer takes place on 1 July 2025, in the accounting period ending 31 December 2025. During this period, the transferor (A Ltd) and transferee (Z Ltd) are both subject to the Pillar 2 rules.

The transitional safe harbour applies to A Ltd for the 2025 period, but the territory of Z Ltd only qualified for the safe harbour in the 2024 period. Z Ltd will complete the full calculations for the 2025 period.

Subparagraph 2(3) applies to the transfer because:

  • it is an intra-group transfer that has taken place on or after 1 December 2021, and
  • the transitional safe harbour applies to the transferor (A Ltd) for the period in which the transfer took place.

It will apply to the transfer from 1 July 2025, because this is the later of:

  • 1 January 2025, the first day of the first period for which the transitional safe harbour no longer applies to the territory of Z Ltd, and
  • 1 July 2025, the date of the transfer.

If the transitional safe harbour had applied to Z Ltd for the 2024, 2025 and 2026 periods, subparagraph 2(3) would have applied to the transfer from 1 January 2027 as this would be the later of:

  • 1 January 2027, the date of the first period for which the transitional safe harbour no longer applies, and
  • 1 July 2025, the date of the transfer.

Particular types of entity

There are special rules for joint ventures, investment entities, and minority owned members. See MTT15970 for further guidance.

Domestic Top-up Tax (DTT)

The safe harbour will also apply for DTT purposes. Some adjustments are required for wholly domestic groups and entities. See MTT15980 for further guidance.