Multinational Top-up Tax and Domestic Top-up Tax

MTT45120 - Particular entities and adjustments: Investment entities: Calculating the top-up amount of an investment entity

The following process is used to determine the top-up amount of an investment entity.

Step 1 – Determine the adjusted profits of the entity for the period. If the adjusted profits are nil or less, the top-up amount is nil.

Step 2 – Make any further adjustments to the adjusted profits that are required (see MTT45130).

Step 3 – Determine the substance based income exclusion for the entity (see MTT45140).

Step 4 – Make any further adjustments to the substance based income inclusion that are required (see MTT45130).

Step 5 – Subtract the substance based income exclusion amount (after any further adjustment have been made) from the adjusted profits (after any further adjustments have been made).

Step 6 – Determine the investment entity effective tax rate for the period (see MTT45150).

Step 7 – Subtract the investment entity effective tax rate from 15%. If the result is nil or less, the top-up amount is nil.

Step 8 – Multiply the result of Step 7 by the result of Step 5.

Additionally, if the taxable distribution method election applies to the entity, the positive undistributed income amount must be added to Step 8 to determine the top-up amount of the investment entity.

This is set out in section 220 of Finance (No.2) Act 2023.

Determining the adjusted profits of an investment entity

In the legislation, the term ‘standard member’ is used to refer to the main subgroup in a territory for which the effective tax rate and top-up amounts are determined.

Investment entities are not standard members, and their effective tax rate and top-up amounts are determined separately from the standard members.

When applying the rules of Chapter 4 to an investment entity, the term ‘standard member’ should instead be taken as a reference to the members of the subgroup in question.