Multinational Top-up Tax and Domestic Top-up Tax

MTT27180 - Calculating the effective tax rate: Covered tax balance: Deferred tax: Cross-border allocation

Deferred tax expense in respect of deferred tax assets and liabilities (on the balance sheet) is to be allocated between the standard members of a group in one territory to the standard members of the group in another territory, in accordance with the deferred taxes methodology.

This is set out in section 181B of Finance (No.2) Act 2023.

Deferred taxes methodology

The deferred taxes methodology is set out in Chapter 4.2 of the June 2024 Agreed Administrative Guidance document published by the OECD.

When using this guidance, the OECD defined terms should be read as if they were substituted by their equivalents in UK legislation. For example, a reference to a Five-Year Election is to be read as an election to which paragraph 1 of Schedule 15 (long term elections) applies.

The methodology may be enacted into UK legislation by regulations.

Introduction in Finance Act 2025

Section 181B was introduced in FA25. This guidance page reflects the current version of the legislation. Consult FA25 for legislation applicable to prior periods if the retrospection election does not apply (see MTT09490).