MTT15920 - Scope: Safe harbours: Transitional safe harbour: The election
Source: gov.uk (2025-08-05)


To access the transitional safe harbour, the group must make an election for the safe harbour to apply for a territory for an accounting period.

An election can be made where the following conditions are met:
- the period for which the election is being made is within the transitional period,
- at least one of the three tests are met in respect of the territory for the period (see MTT15940 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt15940), MTT15950 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt15950) and MTT15960 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt15960)),
- a qualifying Country-by-Country Report has been prepared in respect of the territory for that period (see MTT15930 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt15930)),
- the election (or an equivalent election in a foreign equivalent of MTT) has been made in respect of the territory for all previous periods in which the Pillar Two rules applied to members of the group in the territory (known as the 'once out, always out' rule),
- a deemed distribution tax election has not been made in respect of the territory for the period.
This is set out in Paragraph 3, Schedule 16 to Finance (No.2) Act 2023.

Making the election

The election is made annually via the information return, and details of how one or more of the tests are met must be included in the information return.

Transitional period

An election may be made for accounting periods beginning on or before 31 December 2026 and ending on or before 30 June 2028. This is the 'transitional period'.

‘Once out, always out’

If the group has already completed the full MTT calculations for a territory, they cannot make the election again for subsequent periods. This ‘once out, always out’ provision applies because the purpose of the transitional safe harbour is to reduce the compliance obligations of the group when first entering the regime.

If it is determined as a result of a compliance check that the group was not eligible for the transitional safe harbour for a territory for a period, it will not be eligible for the safe harbour for that period or any subsequent period, and it must conduct the full calculations for the territory for those periods.

Stateless members

For MTT purposes, a stateless member is located in a nominal territory. This territory does not exist for CbCR purposes. A transitional safe harbour election cannot be made for a stateless member, because a CbC Report (whether actual or notional) will not include data for that nominal territory.

Example

A group has accounting periods ending on 31 December. In Territory A, it only meets the conditions for the safe harbour for the periods ending on 31 December 2024 and 31 December 2026. It does not have any members located in Territory B until the period ending 31 December 2026, and the conditions are met for that period.

The group can elect to apply the safe harbour for Territory A for the period ending 31 December 2024.

The group cannot elect to apply the safe harbour for Territory A:
- for the period ending 31 December 2025, because the conditions were not met,
- for the period ending 31 December 2026, because it had already completed the full effective tax rate calculation for that territory in a preceding period, nor
- for the period ending 31 December 2027, because the period began after 31 December 2026.
The group can elect to apply the safe harbour for Territory B for the period ending 31 December 2026, because:
- the period begins and ends within the transitional period,
- the conditions are met, and
- a full effective tax rate calculation was not required to be completed for that territory in any preceding period.
Example 2

Group Zed acquires a UK member in the accounting period ending 31 December 2025. It did not previously have an entity in the UK, so it was not subject to MTT for the 2024 period, but it was subject to a foreign equivalent of MTT applied by Territory Z, the UPE territory.

In the 2024 accounting period, Group Zed had made a valid election for the transitional safe harbour in respect of Territory A. However, it could not make an election for Territory B because Territory B did not meet any of the tests for that period.

Under MTT, for the 2025 period, the transitional safe harbour election could be made for Territory A but cannot be made for Territory B because of the ‘once out, always out’ rule.

The election could also be made for the UK for the 2025 period because there were no UK entities in prior periods, so the ‘once out, always out’ rule will not apply.