UK Publishes Multinational Top-up Tax and Domestic Top-up Tax Guide

On April 1, HRMC published the policy paper “The Multinational Top-up Tax (Pillar 2 territories, qualifying domestic top-up taxes and accredited qualifying domestic top-up taxes) Regulations — 2025”, which will come into force on April 21, 2025.

Multinational Top-up Tax (MTT) is part of the UK’s implementation of the Pillar 2 of the Global Minimum Tax initiative. MTT may be chargeable where a group’s profits arising in a jurisdiction are taxed below the minimum effective rate of 15%.

The charge is a top-up tax, the amount brought into charge is that required to achieve a 15% minimum effective rate in accordance with the reform of the international tax framework as proposed by OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

To ensure the intended distribution of taxing rights between jurisdictions and prevent double taxation, MTT recognises taxes paid under other jurisdiction’s ‘qualifying’ income inclusion rules and domestic top-up taxes. Such rules and taxes are qualifying if they are consistent with the OECD model rules.

The document will contain:

– a list of each territory that is a Pillar 2 territory under Section 241 of Finance (No.2) Act 2023, reflecting its implementation of a qualifying income inclusion rule,

– a list of each tax that is a qualifying domestic top-up tax under Section 256 of Finance (No.2) Act 2023 (and the respective territories of those taxes),

– a list of each tax specified as being accredited for the qualifying domestic top-up tax safe harbour in according to Schedule 16FA of Finance (No.2) Act 2023 (and the respective territories of those taxes),

– powers of HMRC to specify additions to each of the lists above by notice, so when other territories implement qualifying rules, those territories and rules will be recognised faster for the purposes of the UK law.

Policy paper