Further draft HMRC guidance for Multinational and Domestic Top-up Tax

On 12 September 2024, HMRC published further draft guidance for consultation in relation to the UK's implementation of the OECD's Pillar Two rules. This is the third version of draft HMRC guidance in relation to the UK Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT); previous draft versions were published in June 2023 and December 2023. The updated draft guidance doesn’t yet cover all of the provisions in the UK legislation and further supplemental guidance is expected later in the year.

Comments on the guidance are invited by 23 October 2024 and following HMRC’s review of feedback during this consultation window, finalised guidance will be published as a new HMRC manual expected to be released in autumn 2024.

The purpose of further draft guidance is to provide HMRC’s interpretation of certain areas of the MTT and DTT, which have been implemented in the UK for accounting periods beginning on or after 31 December 2023.

New content included in this release of the draft guidance relates to the application of the MTT and DTT involving the following areas:

• Attributing top-up amounts to responsible members;
• A reference table showing differences between the MTT and DTT;
• Sub-divided entities;
• The ‘Qualifying Domestic Minimum Top-up Tax’ (QDMTT) safe harbour; 
• The meaning of ‘line by line basis’;
• Controlled Foreign Company (CFC) tax expense and blended CFC regimes;
• Qualifying tier one capital;
• Transferable tax credits;
• Calculation of top-up amounts, including guidance on the substance based income exclusion;
• Permanent establishments;
• Deemed continuity of partnerships;
• Non-standard members and minority owned members; 
• Restructures;
• Investment entities; and
• Transitional provisions.

There have been significant revisions to certain pages from previous releases, namely: 

• Various pages have been revised to include references to DTT;  
• The section on the transitional safe harbour;  
• The section on deferred tax accounting; and  
• Protected cell companies.

Additionally, all pages have been updated to include legislative references which should be helpful in navigating through the complex UK MTT and DTT rules.

Further, it has been confirmed that a supplementary release of draft guidance will be published in winter 2024 which will contain any further significant revisions to existing pages, together with new pages on flow-through entities, joint ventures, the Undertaxed Profits Rule (UTPR), tax equity partnerships, post-filing adjustments of covered taxes, and additional top-up amounts. Also, a cross reference mapping of the UK legislation with the OECD Pillar 2 releases will be included.

For further information please contact:

• Kashif Javed
• Anvil Kabadi