MTT25210 - Calculating the effective tax rate: Covered tax balance: Amounts to be included

The following amounts are to be reflected in the covered tax balance, in accordance with section 176 of Finance (No.2) Act 2023:

  • any amount of covered taxes reflected in a member’s underlying profits but is not reflected in the member’s qualified current tax expense.
  • the total deferred tax adjustment amount (see MTT27000+).
  • any amount of covered tax paid or refunded in the current accounting period that relates to an uncertain tax position, where that amount was excluded from the covered tax balance in a previous period.
  • any amount of credit or refund in respect of a tax credit:
    • that has not been included in the qualifying current tax expense in the current period or a previous accounting period.
    • that is not a qualifying refundable tax credit or marketable transferable tax credit (see MTT21410 and MTT21420).
  • any amount of covered taxes credited or refunded to the member, other than a qualifying refundable tax credit (see MTT21410).
  • the amount of special loss deferred tax assets used by a member in the current accounting period, where applicable (see MTT27010).
  • any amount of covered taxes:
    • that relates to an amount reflected in the adjusted profits of a member, where the amount reflected in the adjusted profits is subject to covered taxes under the law of the member’s territory, and
    • that is recorded in other comprehensive income by that member.
  • any amount of covered taxes relating to an amount that is reflected in the adjusted profits as a result of an adjustment for prior period errors (see MTT21200) or changes in accounting policies (see MTT21210).
  • any amount allocated to a member from another group member.

Where these amounts are not already reflected in the qualifying current tax expense of a member, an adjustment is required to ensure that they are reflected when determining the covered tax balance for the territory.

Domestic Top-up Tax

For DTT purposes, in regard to amounts that are allocated to a member from another group member, only amounts allocated under section 178(1) are to be reflected in the covered tax balance. These are amounts of tax reallocated in relation to section 167 or 168 (profits of hybrids and transparent entities, see MTT41470).