Multinational Top-up Tax and Domestic Top-up Tax

MTT15950 - Scope: Safe harbours: Transitional safe harbour: The simplified effective tax rate test

The simplified effective tax rate test is met for a territory for an accounting period when the simplified effective tax rate (ETR) is equal to or above the minimum.

The simplified ETR is:

• the qualifying income tax expense of the members in the territory,

divided by

• the aggregate profit (loss) before income tax for those members.

See MTT15930 and MTT15935 for guidance on determining the qualifying income tax expense and aggregate profit before income tax. Qualifying income tax expense is taken directly from financial statements and is not found in a Country-by-Country Report, so no adjustment will apply.

This is set out in Paragraph 8, Schedule 16 to Finance (No.2) Act 2023.

Simplified ETR below the minimum

If the group does not qualify for the safe harbour, it must conduct the full MTT calculations to determine the ETR. The simplified ETR is only used to determine whether the group meets the test for the transitional safe harbour. It is not used to calculate any top-up tax liabilities.

Minimum ETR

The minimum ETR, for transitional safe harbour purposes, is:

• 15%, for accounting periods beginning in 2023 or 2024,
• 16%, for accounting periods beginning in 2025, or
• 17%, for accounting periods beginning in 2026.