Multinational Top-up Tax and Domestic Top-up Tax

MTT45150 - Particular entities and adjustments: Investment entities: Calculating the effective tax rate of a territory

When calculating the top-up amount of an investment entity (see MTT45120), it may be necessary to determine the investment entity effective tax rate (ETR) of the territory of that investment entity, to complete Step 6.

The investment entity ETR for a period is calculated under the following process, in accordance with section 222 of Finance (No.2) Act 2023.

Step 1 – Determine the adjusted profits of each of the investment entities in the territory, after any further adjustments have been made (see MTT45130).

See MTT21000+ for general guidance on determining adjusted profits.

Step 2 – Find the net amount of those adjusted profits.

Step 3 – If the net adjusted profits is nil or less, the investment entity ETR is treated as being 15%.

Step 4 – Determine the covered tax balance of each investment entity (see MTT25000+).

Step 5 – Make any further adjustments to the covered tax balance that are required (see MTT45130).

Step 6 – Find the net of the covered tax balances of all the investment entities in the territory (after any further adjustments have been made).

Step 7 – Divide the net covered tax balances (Step 6) by the net adjusted profits (Step 2).