Multinational Top-up Tax and Domestic Top-up Tax

MTT44010 - Particular entities and adjustments: Restructures: Member joining or leaving group

Where:

• an entity joins or leaves a group (including where the entity becomes the ultimate parent of a new group), and
• any portion of its assets, liabilities, income, expenses or cash flows are included on a line-by-line basis (see MTT09530) in the consolidated financial statements for the transfer period,

the entity will be treated as being a member of the group for the entire transfer period.

The ‘transfer period’ is the accounting period of the group in which the entity joins or leaves the group. Consequently, an entity may be a member of two groups for the same period of time.

Certain adjustments are required in relation to:

• deferred tax assets and liabilities of the entity,
• purchase accounting consolidation adjustments relating to the transfer of the entity, and
• the eligible tangible asset amount of the entity.

This is set out in section 208 of Finance (No.2) Act 2023.

Profit, tax and payroll amounts to be taken account of only where included in the consolidated financial statements

Where an entity is treated as being a member of a group for a transfer period, only the profits, covered taxes, and eligible payroll costs taken into account in the consolidated financial statements of the group are to be taken account of for MTT purposes.

Purchase accounting consolidation adjustments

Where:

• the entity joins or leaves a group as the result of a transfer of ownership interests, and
• that transfer of ownership interests gives rise to purchase accounting consolidation adjustments,

those adjustments are to be ignored when determining the adjusted profits and covered tax balance of the entity in all accounting periods.

Deferred tax assets and tax liabilities

Where:

• an entity becomes a member of a group (“group A”) as a result of a transfer of ownership interests in it, and
• the entity was a member of another group, (“group B”), immediately before the transfer,

special rules apply to the deferred tax assets and liabilities of the entity (except for special loss deferred tax assets, see MTT27010).

The deferred tax assets and liabilities of the entity existing immediately before the transfer are to be taken account of when the entity is a member of group A as though the ultimate parent of group A had a controlling interest in the entity when the assets and liabilities arose.

If a deferred tax liability of the entity was included in the total deferred tax adjustment amount for that member in group B, the following treatment applies:

• the deferred tax liability for the entity is deemed to have reversed. That reversal does not need to be reflected in any calculation made in relation to group B.
• the deferred tax liability is to be treated as arising in the transfer period for the purpose of determining the total deferred tax adjustment amount for the member in group A.
• for recaptured deferred tax liabilities, any resulting reduction in the covered tax balance of the entity as a member of group A is only to have effect in the accounting period in which the deferred tax liability is recaptured. (See MTT27400 for further guidance.)

Eligible tangible asset amount

The eligible tangible asset amount of an entity that joins or leaves a group must be apportioned to the length of the transfer period for which it was a member of that group.

Where an entity becomes a member of a group, the eligible tangible asset amount is determined by multiplying:

• the eligible tangible asset amount for the transfer period, and
• the amount given by dividing:
• the number of days in the post-transfer period, by
• the number of days in the transfer period.

Where an entity ceases to be a member of a group, the eligible tangible asset amount is determined by multiplying:

• the eligible tangible asset amount for the transfer period, and
• the amount given by dividing:
• the number of days in the pre-transfer period, by
• the number of days in the transfer period.

The ‘post-transfer period’ is the period:

• Beginning on the day on which the member became a member of a group, and
• Ending on the last day of the transfer period.

The ‘pre-transfer period’ is the period:

• beginning on the commencement of the transfer period, and
• ending on the day before the day on which the member ceased to be a member of the group.

Example

On 1 April 2025, A Ltd ceased to be a member of Group A and joined Group B.

Group A and Group B both had accounting periods of 1 January 2025 to 31 December 2025. This means the transfer period of each group is the same.

In the transfer period, the eligible tangible asset amount of A Ltd was £2 million.

The eligible tangible asset amount of A Ltd that is attributable to Group A is £493,151. This is determined by the following calculation:

• the eligible tangible asset amount of £2 million, multiplied by
• the amount given by dividing:
• the number of days in the pre-transfer period (90 days), by
• the number of days in the transfer period (365 days).

The eligible tangible asset amount of A Ltd that is attributable to Group B is £1,506,849. This is determined by the following calculation:

• the eligible tangible asset amount of £2 million, multiplied by
• the amount given by dividing:
• the number of days in the post-transfer period (275 days), by
• the number of days in the transfer period (365 days).