MTT52200 - Administration: The information return: Making elections

A number of elections in the design of MTT allow for groups to simplify their compliance requirements. These elections must be made in the information return.

Where elections are made, they will apply to both Multinational Top-up Tax and Domestic Top-up Tax.

Some of these elections are made annually, while others (long term elections) will apply indefinitely once made.

Long term elections must apply for at least five accounting periods (the election period and the four subsequent periods) and can only be revoked from the sixth period onwards. Once revoked, a long term election cannot be made again for five periods.

This is set out in paragraphs 1-2, schedule 15 to Finance (No.2) Act 2023.

Long term elections

The following elections are long term elections:

  • section 127(8), excluded entities of a multinational group
  • section 141(7), treat all portfolio holdings as short-term portfolio holdings
  • section 161, using the realisation principle in calculating certain gains and losses
  • section 162, the treatment of stock-based compensation when determining members’ underlying profits
  • section 164, excluding intra-group transactions when determining members’ underlying profits
  • section 165, excluded equity gains or losses to be treated as not excluded
  • section 166, adjusting underlying profits to exclude gains or losses relating to hedging currency risks
  • section 187, the treatment of losses as special loss deferred tax asset
  • section 213, the treatment of investment entities as a flow-through entity
  • section 214, the taxable distribution method

For a long term election to be valid, it must:

  • specify the first accounting period for which the election will apply,
  • be included in the information return for that period,
  • be made by the due date for that information return, and
  • not be made in one of the four periods following the revocation of the same election.

Revoking a long term election

Revocations of long term elections are also made in the information return. To be valid, a revocation must:

  • specify the first accounting period for which the revocation will apply,
  • be included in the information return for that period, and
  • be made by the due date for that information return.

Long term elections cannot be revoked in the four periods following the first election period.

Long term election under section 187 (treatment of losses as special loss deferred tax assets)

Special rules apply to an election made under section 187. An election under this section is made in respect of a particular territory. It can only be made once, in the return for the first accounting period in which the Pillar 2 rules apply to a standard member of the group located in that territory. It can be revoked in any subsequent period, but cannot be made again.

The election cannot be made in respect of a territory that has an eligible distribution tax system.

Where a group qualifies for the transitional safe harbour for a territory for a period, it does not need to make a section 187 election in that period. It can make the election in the return for the first period for which it has to complete the full calculations for that territory. See MTT15910 for further guidance on the transitional safe harbour.

Annual elections

The following elections are annual elections:

  • section 163, spreading certain capital gains over five years
  • section 182(8), excluding the total deferred tax adjustment amount for the period
  • section 186(2), deferred tax assets recorded at less than minimum rate
  • section 189, apply the deemed distribution tax amount to all members in a territory
  • section 195(2), not to calculate the substance based income exclusion for a period
  • section 199, to treat total top-up amount as nil
  • section 205, to carry forward and reduce the collective additional amount
  • section 216, assets and liabilities adjusted to fair value for tax purposes
  • section 217(8), to treat a decrease in a liability in a prior period as insignificant
  • section 221(4), not to calculate the substance based income exclusion for an investment entity
  • section 229F, election to make one member of a group liable for untaxed amounts
  • paragraph 2(7) of Schedule 16, transitional arrangements for transfer of assets
  • paragraph 3 of Schedule 16, the transitional safe harbour

For an annual election to be valid, it must:

  • specify the accounting period for which the election will apply,
  • be included in the information return for that period, and
  • be made by the due date for that information return.

Amending an election

Within the time limits for amending an information return (see MTT52000), it is possible to amend a return so that an election or revocation is no longer included in the information return.

If such an amendment is made, the election or revocation is no longer included in the information return and is therefore not valid. An amendment is not a revocation.

Elections for Domestic Top-up Tax purposes

Some elections are only applicable for DTT purposes. Unlike other elections, these are only found in UK legislation and have no equivalent in the model rules. These elections are made on the UK self-assessment return rather than by inclusion in the information return, which follows the format and requires the same information as the OECD published GIR.

The elections which apply only to DTT are:

  • section 271, an annual election to specify a single member of the group that is chargeable
  • section 272(8)(a), a long term election which allows a wholly domestic group to use UK GAAP as an alternative accounting standard

Aside from these, any election made in respect of MTT (or a foreign equivalent) is also made in respect of DTT, and vice versa. This ensures that the top-up amounts chargeable under DTT are the same amounts that would be charged under DTT.

Retrospection election

The effective date of the majority of the amendments made in Finance Act 2025 depends on whether or not a retrospection election has been made. This election is of a different nature to other MTT elections, and is not made in the information return. See MTT09490 for guidance on the retrospection election.