MTT21100 - Calculating the effective tax rate: Adjusted profits: Adjustment of underlying profits
Source: gov.uk (2025-08-05)


In MTT, the adjusted profits are the denominator in the effective tax rate computation. The adjusted profits are generally the same as the profits taken from the underlying profits accounts. Certain adjustments must be made to those underlying profits, where amounts found in the underlying profits must be excluded from the adjusted profits, or where amounts not in the underlying profits must be reflected in the adjusted profits.

This page contains a summary of adjustments that may be required.

Tax expense

Tax expense amounts should not be reflected in a member’s adjusted profits. Underlying profits should therefore be adjusted to add back debits and exclude credits, where they relate to such amounts. See MTT21110 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21110).

Intra-group transactions

Income, expenses, gains and losses arising from transactions between a member and other members of its group must be reflected in the adjusted profits. An election can be made to exclude some intra-group transactions from the adjustment. See MTT (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21120)21120 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21120).

Intra-group transactions – Permanent differences arising from transfer pricing adjustments

Adjustments are required in certain cases where there is a transaction between two members of the same group that are located in different territories. The adjustment ensures that the transaction will be reflected in the adjusted profits in accordance with the transfer pricing adjustment. See MTT21125 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21125).

Relevant share acquisition adjustments

A purchase accounting adjustment is not to be reflected in the adjusted profits if it is a relevant share acquisition adjustment. However, an adjustment is not required in certain circumstances. See MTT21130 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21130).

Excluded dividends

The underlying profits are to be adjusted to exclude any excluded dividends received or accrued by a member. Following an election dividends received from short-term portfolio holdings will be exempt from the exclusion. See MTT (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21140)21140 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21140).

Excluded equity gain or loss

Equity gains and losses are generally to be excluded when calculating the adjusted profits. However it is possible to elect for some qualifying equity gains and losses included. See MTT21150 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21150).

Revaluation method gain or loss

Relevant revaluation method gains or losses are to be included when calculating the adjusted profits, see MTT (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21160)21160 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21160).

An election can be made to use the realisation principle to determine some gains and losses, see MTT21250 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21250).

Asymmetric foreign currency gain or loss

Adjustments to the underlying profits may be required where a member’s accounting currency and tax currency are different, and gains or losses arise from fluctuations in exchange rates of those currencies or between either one and a third currency. See MTT (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21170)21170 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21170).

Illegal payments

Expenses accrued by a member for illegal payments (such as bribes or kickbacks) are to be excluded when calculating the adjusted profits. See MTT (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21180)21180 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21180).

Fines and penalties

Expenses accrued by a member for fines or penalties of 50,000 euros or more are to be excluded when calculating the adjusted profits. See MTT2 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21190)1190 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21190).

Prior period errors

An adjustment to adjusted profits is required under certain circumstances in relation to prior period errors. See MTT21200 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21200).

Changes in accounting principles

An adjustment to adjusted profits is required under certain circumstances in relation to changes in accounting principles. See MTT21210 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21210).

Pension fund expense

For both defined benefit and defined contribution schemes, an adjustment is required in some cases when calculating the adjusted profits of a member, to ensure that the adjusted profits reflect the actual contributions made to, and receipts from, a pension fund in the accounting period. See MTT (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21220)21220 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21220).

Transactions requiring arm's-length treatment

In some cases, an adjustment is required in respect of certain transactions between members of the same group located in the same territory. Where the conditions are met, these transactions must be reflected in the adjusted profits on an arm’s length basis. See MTT21230 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21230).

Intra-group financing arrangements

Expenses arising from certain intra-group financing arrangements are to be excluded from adjusted profits. See MTT21240 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21240).

Unrealised gains and losses

Where a group has elected to use the realisation principle, adjustments may be required for unrealised gains and losses. See MTT21250 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21250).

Stock-based compensation adjustment election

A group may elect to adjust the amount of stock-based compensation that is included in the adjusted profits for the members in the territory subject to the election. The amount of stock-based compensation is substituted for the amount that was allowed for tax purposes for the same expense. See MTT21260 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21260).

Election to spread certain capital gains over five years

A group may elect for the net gain on the disposal of certain local tangible assets to be spread across a period of five years. See MTT21270 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21270).

Currency hedging election

At the election of the group, qualifying gains or losses arising from fluctuations in exchange rates are to be excluded when determining the adjusted profits. See MTT21280 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21280).

Election where assets and liabilities adjusted to fair value for tax purposes

In certain circumstances, a member of a group may adjust the value of its assets or liabilities to fair value for domestic tax purposes. By election, the member may also make this adjustment for MTT purposes. See MTT21290 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21290).

Qualifying tier one capital

Distributions paid or received in respect of qualifying tier one capital should be treated as income or expense for MTT purposes. See MTT21300 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21300).

Tax credits

The underlying profits of a member of a group must be adjusted to ensure that qualifying refundable tax credits and marketable transferable tax credits are accounted for as income, rather than a tax expense. See MTT21400+ (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21400)

Value of marketable transferable tax credits

In calculating the underlying profits of a member, the treatment of marketable transferable tax credits will differ depending on whether the member is the originator (the person to whom the credit was originally granted) or the purchaser. See MTT21430 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt21430).