Multinational Top-up Tax and Domestic Top-up Tax

MTT31010 - Calculating top-up amounts: Total top-up amount for a territory

The total top-up amount for the territory is determined by the following process, which is set out in section 194 of Finance (No.2) Act 2023.

The total top-up amount is calculated separately for standard members, investment entities and minority owned subgroups within a territory.

Step 1: Subtract the effective tax rate of the members in the territory from 15% (see MTT20000+ for guidance on calculating the effective tax rate). If the result is nil or less, the total top-up amount for that territory is nil.

Step 2: Subtract the sum of the losses of those members of the group that made an adjusted loss for the period (see MTT21000+ for guidance on calculating the adjusted profits) from the sum of the profits of those members of the group that made an adjusted profit. The result is the aggregate adjusted profits for the standard members in the territory.

Step 3: Subtract the substance-based income exclusion amount (see MTT32000+) from the result of Step 2. If the result is nil or less, the total top-up amount for that territory is nil.

Step 4: Multiply the result of Step 1 (which will be a percentage) by the result of Step 3.

Note that the total top-up amount will be reduced where there is a QDT credit amount (see MTT31020).

Example

A group has two members in Territory A. One had an adjusted profit of £10,000 and the other had an adjusted loss of £2,000. The effective tax rate is determined to be 10% for the period and the substance-based income exclusion amount is £1,000.

There is no QDT credit for the territory.

Step 1: The effective tax rate of 10% is subtracted from 15% to arrive at 5%.

Step 2: The aggregate adjusted profits are (£10,000 - £2,000) = £8,000.

Step 3: Subtract the substance-based income exclusion amount (£8,000 - £1,000) = £7,000.

Step 4: The total top-up amount for Territory A is (5% of £7,000) = £140.