MTT25100 - Calculating the effective tax rate: Covered tax balance: Covered taxes

A tax is a covered tax in relation to a member if it is:

  • a tax on profits of that member,
  • a tax imposed on the member under an eligible distribution tax system,
  • a tax imposed on the member as a substitute for a tax on profits that generally applies in the territory in which the tax is imposed, or
  • a tax charged by reference to the capital of the company (or in reference to a combination of its capital and its profits).

A tax is considered to be a tax on the profits of a member where:

  • that member has a direct or indirect ownership interest in another member of its group, and
  • the tax is charged on that member on its share of the income or profits of the other member.

See MTT17030 for guidance on ownership interests.

This is set out in section 173 of Finance (No.2) Act 2023.

Taxes that are not covered

A tax will not be a covered tax if it is:

  • Multinational Top-up Tax or an equivalent (see MTT09970),
  • a QDMTT (see MTT09970),
  • a qualifying undertaxed profits tax,
  • a disqualified refundable imputation tax (see MTT25230), or
  • where the member carries on a life insurance business, a tax in respect of which amounts are charged to the member’s policyholders.