MTT25510 - Calculating the effective tax rate: Covered tax balance: Blended CFC regimes
Source: gov.uk (2025-08-05)


A special rule applies to amounts of tax charged under certain controlled foreign company (CFC) regimes, including the US’s GILTI, in the first two years of the MTT regime. Where the conditions are met, amounts are reallocated to the CFC if the CFC is a member of the same group. Otherwise, the amounts are excluded from the covered tax balance.

A different treatment for blended CFC regimes is required because income attributed from CFCs to an owner under such a regime are blended at the owner level. It is impractical to disaggregate the amounts to identify what amounts of the blended CFC tax charge should be attributed to each CFC. An allocation key is therefore used to simplify the reallocation.

This is set out in sections 179(4) and 180 of Finance (No.2) Act 2023.

Conditions

An amount will be reallocated from a member (“C”) to an entity (“F”) in which it has an ownership interest if:
- C is subject to a blended CFC regime in a qualifying accounting period,
- F is a CFC entity in relation to C, and
- the blended CFC allocation key of F exceeds nil.
However, where C and F are not members of the same group for MTT purposes, the amount is not reallocated to F. It is only excluded from the covered tax balance of C.

See MTT17000 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt17000) for guidance on ownership interests.

The amount to be reallocated or excluded

To determine the amount that may be reallocated, divide:
- the blended CFC allocation key for F
by
- the sum of all blended CFC allocation keys for the CFC entities in which C has an ownership interest.
Blended CFC allocation key

The blended CFC allocation key of a CFC entity in which C has an ownership interest is given by multiplying:
- C’s share of the income of the CFC entity (as determined for the purposes of the CFC regime)
by
- the applicable CFC rate, less the applicable effective tax rate (ETR) of the CFC entity.
However, the blended CFC allocation key will be treated as nil where:
- the applicable ETR of the CFC entity (see MTT25511 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt25511)) exceeds 15%, or
- subtracting the applicable ETR of the CFC entity from the applicable CFC rate of the period gives a negative result.
Applicable CFC rate

The applicable CFC rate is the rate which reflects the threshold for low taxation by reference to which the CFC regime is generally operated, taking into account any credit for foreign taxes available under the regime.

Qualifying accounting period

An accounting period will be a ‘qualifying accounting period’ for this purpose if it:
- commences on or before 31 December 2025, and
- ends on or before 30 June 2027.
Meaning of ‘blended CFC regime’

A CFC regime is a ‘blended CFC regime’ if:
- an entity (“the entity”) with ownership interests in a CFC may be subject to tax under the regime,
- under the regime, the income, losses and creditable taxes of all of the CFCs of the entity are aggregated for determining the entity’s tax liability,
- the regime does not take into account the income of the entity (or members of a consolidated group of which the entity is a member) that arises in the location of the entity, except to the extent that the entity may use its losses arising in that location to reduce its liability under the regime, and
- the regime operates by reference to a rate which is a threshold for low taxation.
The US GILTI regime is considered to meet the definition of a blended CFC regime.

Where a CFC regime does not meet these criteria, the guidance on this page will not apply to amounts of tax charged under the regime. Instead, the ordinary guidance on CFC regimes will apply (see MTT25500 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt25500)).

See MTT25500 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt25500)for the definition of ‘CFC regime’.

Meaning of ‘CFC entity’

See MTT25500 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt25500)for the definition of ‘CFC entity’.