Policy paper

Multinational Top-up Tax and Domestic Top-up Tax — amendments

Published 30 October 2024

Who is likely to be affected

Groups with annual global revenues exceeding 750 million euros that have business activities in the UK.

General description of the measure

The Multinational Top-up Tax and Domestic Top-up Tax are the UK’s implementation of the Global Anti-Base Erosion (GloBE) rules agreed by the UK and other members of the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting.

This measure is comprised of amendments identified from stakeholder consultation and those necessary to ensure that UK legislation remains consistent with commentary and administrative guidance to the GloBE rules agreed by the UK and other members of the Inclusive Framework.

Further amendments may be introduced in the future to reflect subsequent administrative guidance agreed by the UK as part of the Inclusive Framework.

Policy objective

This measure is part of Pillar 2 of the two-pillar solution to reform the international tax framework, which was developed by the UK and other members of the Inclusive Framework.

It ensures that UK legislation remains consistent with the agreed GloBE rules, commentary and administrative guidance.

Background to the measure

In October 2021, over 130 countries in the Inclusive Framework reached agreement on a two-pillar solution to reform the international tax framework in response to the challenges of digitalisation. The GloBE model rules, commentary and administrative guidance have been published by the OECD pursuant to this agreement.

The agreement was followed by a consultation on the UK implementation of the GloBE rules which closed in April 2022. In Autumn Statement 2022, it was announced that the Multinational Top-up Tax and Domestic Top-up Tax would be introduced from accounting periods beginning on or after 31 December 2023 and the undertaxed profits rule from accounting periods beginning on or after 31 December 2024. Multinational Top-up Tax and Domestic Top-up Tax were introduced in Finance Act 2023.

Detailed proposal

Operative date

The measure will mainly take effect for accounting periods beginning on or after 31 December 2024. There are some provisions which will take effect for accounting periods beginning on or after 31 December 2023.

Taxpayers will also have the option to elect for an additional set of provisions to apply to accounting periods beginning on or after 31 December 2023.

However, the Transitional Country-by-Country Safe Harbour Anti-arbitrage Rule will be effective from the publication of the Written Ministerial Statement on 14 March 2024.

Current law

Multinational Top-up Tax and Domestic Top-up Tax were introduced in the Finance (No.2) Act 2023 and have effect in respect of accounting periods beginning on or after 31 December 2023.

A package of amendments to these taxes was contained within Schedule 12 to Finance Act 2024.

Proposed revisions

Part 3 and Part 4 of Finance (No.2) Act 2023 will be amended to facilitate the effective implementation of the GloBE rules, commentary and administrative guidance as these continue to evolve. These amendments include:

• technical adjustments to the definition of joint ventures
• technical adjustments to the application of Part 3 to joint venture groups
• technical adjustments to the application of Part 4 to joint venture groups
• an adjustment to include minority-owned subgroups in the de minimis election
• the categories and calculation of recaptured deferred tax liability
• adjustments to the filing and payment dates
• technical adjustments to the calculation of substance-based income exclusion amounts
• provisions for divergences between GloBE and accounting carrying values
• changes to the allocation of profits and covered taxes in cases involving follow-through entities
• adjustments to the application of jurisdictional effective tax rates to the blended controlled foreign company regime
• technical adjustments to the inclusion ratio computation
• extension of qualifying foreign tax credits to foreign source income arising from controlled foreign companies, permanent establishments, hybrid entities and reverse hybrid entities
• adjustments to the cross-border allocation of deferred taxes
• a five-year election to disregard deferred tax
• the inclusion of a transitional Country-by-Country Reporting Safe Harbour Anti-arbitrage Rule in Schedule 16 to Finance (No.2) Act 2023
• adjustments to the allocation of Domestic Top-up Tax between members of a multinational group
• adjustments to allow HMRC to specify qualified taxes and safe harbour accreditation by notice
• adjustment to the rule requiring tax symmetry on an asset transfer within a reorganisation
• adjustment to the definition of excluded dividends
• adjustment to the additional top-up amounts rules
• adjustment to treat qualifying asset holding companies which are not members of multinational groups as excluded entities for Domestic Top-up Tax purposes
• a provision for certain overseas Income Inclusion Rules and Domestic Minimum Top-up Tax to have qualifying status, prior to the making of UK regulations, ahead of the outcomes of the ongoing process for international agreement on qualification
• other amendments and corrections

Summary of impacts

Exchequer impact ( £ million)

2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030
Nil	Nil	Nil	Nil	Nil	Nil

This measure is not expected to have an Exchequer impact.

Economic impact

The measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

There is expected to be no impact on individuals as this measure only affects businesses. The measure is not expected to impact on family formation, stability, or breakdown.

Equalities impacts

It is not anticipated that there will be impacts for those in groups sharing protected characteristics.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on multinational enterprises with global revenues in excess of 750 million euros per annum and how they calculate their Multinational Top-up Tax and Domestic Top-up Tax liabilities. This is because this measure simply aims to ensure that the legislation works as was originally intended and is in line with OECD commentary. Therefore, there should be negligible additional impact on businesses, further to the impacts of the original legislation itself.

However, businesses may incur negligible one-off costs for familiarising themselves with the amendments. Customer experience is expected to remain broadly the same as it does not alter how businesses would interact with HMRC.

This measure is not expected to impact civil society organisations.

Operational impact (£ million) (HMRC or other)

This measure will be delivered as part of the existing programme that has been established to implement Pillar 2 in the UK, so there are no further operational costs for HMRC.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored through information collected from tax returns.

Further advice

If you have any questions about this change, contact the Pillar 2 Team by email: PillarTwoConsultation@hmtreasury.gov.uk.