MTT62320 - Charging mechanisms: Undertaxed Profits Rule: Allocation of untaxed amounts: UK proportion of the total untaxed amounts
Source: gov.uk (2025-08-05)


The allocation of the total untaxed amounts between the qualifying members of the group is determined using the number of employees and the tangible fixed assets of those members. Similarly, the UK proportion is based on both:
- the number of employees located in the UK compared to the total number of employees of all qualifying members of the group (see MTT62340 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt62340)), and
- the value of tangible fixed assets located in the UK when compared to the total value of tangible fixed assets of all qualifying group companies (see MTT62350 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt62350)).
However, it is possible that not all qualifying members will be located in territories that have a qualifying undertaxed profits rule, therefore the employees and tangible fixed assets of these members should not be included when determining the total number of employees and the total number of tangible fixed assets of the qualifying members of the group. This ensures the untaxed amounts are fully included within the UTPR calculations of the multinational group.

This is set out in section 229D Finance (No.2) Act 2023.

Calculation to allocate UK proportion of the total untaxed amounts

The UK proportion of the total untaxed amounts is determined by the eight-step process in section 229D(1) of the Act.

The first stage of this calculation is to determine the proportion of UK employees of qualifying members compared to the total number of employees of qualifying members in territories that have a qualifying undertaxed profits rule (steps 1 to 3).

The second stage is to determine the proportion of tangible fixed assets of the UK qualifying members compared to the total tangible fixed assets of the qualifying members of the group in territories that have a qualifying undertaxed profits rule (steps 4 to 6).

The third stage is to add both of these fractions together and divide by two to give the employee headcount and the tangible fixed assets an equal weighting for allocating the untaxed amounts. Unless the nil asset value condition or the nil employee condition apply, the untaxed amount allocated to the UK is determined by multiplying this fraction by the total untaxed amount (steps 7 and 8).

If none of the qualifying members located in territories with a qualifying UTPR have any employees in the period, only the proportion of the value of fixed tangible assets will be used to determine the UK proportion, and vice versa.

If a qualifying member has nil assets and nil employees for the period, then there is no allocation of undertaxed amount to that entity for the period.

Qualifying undertaxed profits rule

A qualifying undertaxed profits rule is either the UK’s undertaxed profits rule or a tax that the UK views as a qualifying undertaxed profits rule and which is specified in regulations made by the Treasury, in accordance with section 257 of the Act.

A qualifying undertaxed profits rule applies in a territory in relation to an untaxed amount if:
- it is in force in that territory for the relevant period, and
- it results in a proportion of the untaxed amount that is greater than nil being allocated to the territory.
The second of these conditions is designed to prevent the allocation of UTPR amounts to territories which have been unable to collect the full proportion of untaxed amounts allocated to them in a previous year.

Example

A group has an untaxed amount of £1000, and has two qualifying members in territories with a qualifying UTPR, A Ltd and B Ltd.

A Ltd is located in the UK, and has 10 employees and no tangible fixed assets. Two of those employees work solely in Territory C.

B Ltd is located in Territory B, and has 30 employees and has £500 in tangible fixed assets located in Territory B, and £100 in tangible fixed assets located in Territory C.

Step 1: Determine the number of employees of qualifying members of the group located in the UK: 10.

Step 2: Determine the number of employees of qualifying members located in territories with a qualifying UTPR: 40.

Step 3: 10/40 = 0.25.

Step 4: Determine the value of tangible fixed assets of members located in the UK: nil.

Step 5: Determine the value of tangible fixed assets of members located in territories with a qualifying UTPR: £600.

Step 6: 0/600 = nil.

Step 7: The average of 0.25 and nil is 0.125.

Step 8 Neither the result of Step 2 nor Step 5 are nil, so the UK proportion of the untaxed amount is the untaxed amount multiplied by the result of Step 7: 1000 * 0.125 = 125.

The territories where the assets are located and where the employees carry out their activities are not relevant to the calculation.