Taxes Consolidation Act 1997 section 111AD

Calculation of top-up tax

Section 111AD sets out how to calculate the top-up tax for multinational enterprise (MNE) groups or large-scale domestic groups where the effective tax rate in a jurisdiction falls below the minimum tax rate.

• Where a jurisdiction's effective tax rate (ETR) is below the minimum tax rate (MTR), the top-up tax percentage is the difference between the two rates, and the jurisdictional top-up tax is calculated by applying that percentage to the jurisdiction's excess profit, adding any additional top-up tax adjustments and subtracting any qualified domestic top-up tax already paid.
• Excess profit is the net qualifying income of all constituent entities in the jurisdiction, less the substance-based income exclusion, which protects income attributable to genuine economic activity (tangible assets and payroll) from top-up tax.
• Each constituent entity's share of the jurisdictional top-up tax is allocated in proportion to its qualifying income relative to the total qualifying income of all constituent entities in that jurisdiction; where the top-up tax arises from a recalculation and there is no net qualifying income, the allocation is based on qualifying income from the fiscal year to which the recalculation relates.
• Stateless constituent entities must calculate their top-up tax separately from all other constituent entities for each fiscal year.

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