MTT30010 - Calculating top-up amounts: Overview

The MTT charge represents a top-up of tax where the effective tax rate in a territory is below 15%. The amount to be charged is called a top-up amount.

To determine a top-up amount, the effective tax rate of a territory must first be determined (see MTT20000+).

The aggregate adjusted profits for the territory are then determined, and the substance based income exclusion amount (see MTT32000+) is deducted. This amount is then multiplied by the effective tax rate of the territory to determine the total top-up amount for the territory (see MTT31010).

QDT credits may then be deducted from the total top-up amount for the territory (see MTT31020).

The top-up amount of each individual member in the territory can then be determined (see MTT31000).

When the top-up amount of a member has been determined, the amount is then attributed to the responsible members who are chargeable for the top-up amount of that member, if any. The responsible member will typically be the ultimate parent. See MTT61040 for guidance on attributing top-up amounts to responsible members.

In some cases, there will be no responsible member to charge a top-up amount. That amount becomes an untaxed amount and will be brought into charge under the Undertaxed Profits Rule. See MTT62000 for guidance on the Undertaxed Profits Rule.

De minimis election

Where the de minimis election applies, the total top-up amount for a territory is treated as being nil. See MTT30100 for further guidance.

Investment entities

Top-up amounts for investment entities are calculated under separate rules, in accordance with section 220 of the Act. See MTT45120 for further guidance.

Minority owned members

The top-up amounts of minority owned members are calculated in the same way as they are for standard members, but they are calculated separately to the top-up amounts for standard members. 

See MTT41510 for further guidance on minority owned members.

Joint venture groups

The top-up amounts are determined for members of a joint venture group as though it was a separate group. Amounts are then attributed to responsible members as they are with members of the multinational group.

Domestic Top-up Tax

The mechanism for allocating the top-up amount of a territory to each member is different for DTT compared to MTT. This alternate method allocates amounts to members in proportion to their respective contributions to the total top-up amount for the territory.

Under DTT, when determining the top-up amount of a standard member that is a qualifying entity, top-up amounts and additional top-up amounts of investment entities in the UK are to be included in the total top-up amount for the territory.

This is because investment entities cannot be qualifying entities for DTT purposes, so top-up amounts are allocated to the standard members. Where there are no standard members in the UK, DTT top-up amounts of investment entities are not brought into charge.

See MTT31100 for further guidance.

Additional top-up amounts

An additional top-up amount can arise in two different scenarios:

  • where there is a negative covered tax balance that exceeds 15% of a loss in the adjusted profits, or
  • where a recalculation of a prior period results in an increase to the top-up tax for that period.

See MTT33000+ for guidance on additional top-up amounts.