HMRC has published partial draft guidance on the multinational top-up tax (“MTT”), and the domestic top-up tax (“DTT”) included in the Finance No. 2 Bill 2023. The MTT and DTT will take effect in the UK in respect of accounting periods beginning on or after 31 December 2023. Comments should be emailed to HMRC Pillar 2 consultation inbox. Include “HMRC guidance” in the subject line, and refer to the page number (MTTxxxxx) and page title if applicable, when submitting comments.
HMRC also welcomes feedback on what stakeholders might find useful in future guidance. This guidance will form a new manual hence further draft guidance will be published in due course. We also understand that HMRC is sending letters to large businesses who it believes may be within the scope of the MTT and DTT.
The multinational top-up tax is a new tax on multinational enterprise groups with annual revenue of €750 million or more. A top-up tax will be charged on UK parent members when a subsidiary is located in a non-UK jurisdiction, and the group’s profits arising in that jurisdiction are taxed at a rate below the minimum effective tax rate of 15 percent.
These measures constitute the UK’s adoption of a qualifying Income Inclusion Rule and a Qualifying Domestic MTT (part of the Pillar 2 or GloBE rules). The draft guidance is partial and consists of three chapters of the HMRC guidance manual on multinational top-up tax, which exists as a standalone manual. Page 24 of the guidance includes a cross-reference table between the OECD Model Rules and the UK legislation.
The three chapters are:-
- Introduction, which includes an overview of the taxes and guidance on chargeability;
- Scope, which includes guidance on excluded entities, the revenue threshold test, and the transitional CbCR safe harbour; and
- Administration.
Additionally, the Introduction chapter includes a map between the legislation and the OECD Model Rules (at MTT09990). The draft guidance is intended to reflect the legislation in the Finance No. 2 Bill 2023 and will be updated to reflect any amendments to the legislation. Therefore, you should not assume that the guidance is comprehensive, nor that it will provide a definitive answer in every case. HMRC will use their own reasoning, based on their training and experience, when applying the guidance to the facts of particular cases.
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