HMRC have published supplementary draft guidance on the Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT) covering, among other things, joint ventures (JVs). Initial draft guidance in relation to the UK’s implementation of the OECD’s global minimum tax was published in June 2023 which was then updated in December 2023 and again in September 2024. However, the guidance (until this version) had remained silent on the applicability of the rules to JV groups. So, for those like me who have been holding their breath for such guidance, you will be delighted to hear that the wait is finally over. You might be less delighted with the content of the guidance.
Why do we need special rules for JVs? MTT and DTT are charged in relation to, respectively, a group’s undertaxed foreign and domestic profits (with ‘undertaxed’ meaning taxed at an effective rate below 15%). For these purposes, ‘group’ means all entities that are consolidated on a line-by-line basis in the financial statements of an ultimate parent. So, if a JV is part of one investor’s accounting consolidation, MTT (or DTT) would be charged by reference to the investor’s group.
But what if no investor consolidates the JV’s results in its accounts? Special rules were introduced to prevent JVs from falling outside the scope of MTT/DTT in these circumstances. These JV rules apply where the ultimate parent uses equity method accounting and owns 50% or more of the JV.
The JV rules apply by reference to a ‘JV group’, constituted of a ‘JV parent’ and its ‘JV subsidiaries’.
What does (or doesn’t) the guidance cover? The guidance on JVs includes a couple of pages setting out the background on what constitutes a JV group (including sections on the JV parent, the JV subsidiary and how this interacts with other rules on different types of entities). There is then just over a page on calculating top-up amounts, half a page on chargeability under MTT and half a page on chargeability under DTT.
Given how fact-specific the application of the rules is, I had (perhaps optimistically) hoped that the guidance would contain a number of examples with different fact patterns which could be used as a basis to take the reader through the application of the rules, the top-up tax calculations and the chargeability provisions (both MTT and DTT). Sadly, that has not been forthcoming (with just one fairly straightforward example included) but the guidance does still contain some useful confirmations.
What useful confirmations are included in the guidance? MTT and DTT apply only if a €750m revenue threshold is met. The guidance contains helpful confirmations on how this threshold applies in a JV context.
When looking at the definition of the JV group and its relationship with the investors, the guidance clarifies that:
On the calculation of the MTT charge, the guidance explains how:
The guidance doesn’t explicitly say this, but the natural outcome of the JV rules applying only where a JV partner owns over 50% of the JV group is that, if you have a 51%/49% JV, only 51% of the top-up tax is collected. The 49% goes uncollected.
If investors are not in the UK (or another jurisdiction that has implemented the OECD’s global minimum tax), the UTPR may kick in. The guidance confirms that, where JV members have an untaxed amount under the UTPR, those amounts will be charged to other members of the investor’s group (where the investor owns at least 50%).
There is very little on exactly how the DTT provisions work in a JV scenario, but the guidance does note that, where a JV group is owned by more than one consolidated group or entity that is in scope of DTT, the filing members for each consolidated group (or the single entity) will record 100% of the DTT allocated to members of the JV group within their respective returns. Where a payment is made against the liability of a member of a JV group, this will reduce the liability for that member in relation to both groups.
It would be helpful if further iterations of the guidance on JVs could include more detailed examples.
Stephanie Mullins, Slaughter and May
HMRC have published supplementary draft guidance on the Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT) covering, among other things, joint ventures (JVs). Initial draft guidance in relation to the UK’s implementation of the OECD’s global minimum tax was published in June 2023 which was then updated in December 2023 and again in September 2024. However, the guidance (until this version) had remained silent on the applicability of the rules to JV groups. So, for those like me who have been holding their breath for such guidance, you will be delighted to hear that the wait is finally over. You might be less delighted with the content of the guidance.
Why do we need special rules for JVs? MTT and DTT are charged in relation to, respectively, a group’s undertaxed foreign and domestic profits (with ‘undertaxed’ meaning taxed at an effective rate below 15%). For these purposes, ‘group’ means all entities that are consolidated on a line-by-line basis in the financial statements of an ultimate parent. So, if a JV is part of one investor’s accounting consolidation, MTT (or DTT) would be charged by reference to the investor’s group.
But what if no investor consolidates the JV’s results in its accounts? Special rules were introduced to prevent JVs from falling outside the scope of MTT/DTT in these circumstances. These JV rules apply where the ultimate parent uses equity method accounting and owns 50% or more of the JV.
The JV rules apply by reference to a ‘JV group’, constituted of a ‘JV parent’ and its ‘JV subsidiaries’.
What does (or doesn’t) the guidance cover? The guidance on JVs includes a couple of pages setting out the background on what constitutes a JV group (including sections on the JV parent, the JV subsidiary and how this interacts with other rules on different types of entities). There is then just over a page on calculating top-up amounts, half a page on chargeability under MTT and half a page on chargeability under DTT.
Given how fact-specific the application of the rules is, I had (perhaps optimistically) hoped that the guidance would contain a number of examples with different fact patterns which could be used as a basis to take the reader through the application of the rules, the top-up tax calculations and the chargeability provisions (both MTT and DTT). Sadly, that has not been forthcoming (with just one fairly straightforward example included) but the guidance does still contain some useful confirmations.
What useful confirmations are included in the guidance? MTT and DTT apply only if a €750m revenue threshold is met. The guidance contains helpful confirmations on how this threshold applies in a JV context.
When looking at the definition of the JV group and its relationship with the investors, the guidance clarifies that:
On the calculation of the MTT charge, the guidance explains how:
The guidance doesn’t explicitly say this, but the natural outcome of the JV rules applying only where a JV partner owns over 50% of the JV group is that, if you have a 51%/49% JV, only 51% of the top-up tax is collected. The 49% goes uncollected.
If investors are not in the UK (or another jurisdiction that has implemented the OECD’s global minimum tax), the UTPR may kick in. The guidance confirms that, where JV members have an untaxed amount under the UTPR, those amounts will be charged to other members of the investor’s group (where the investor owns at least 50%).
There is very little on exactly how the DTT provisions work in a JV scenario, but the guidance does note that, where a JV group is owned by more than one consolidated group or entity that is in scope of DTT, the filing members for each consolidated group (or the single entity) will record 100% of the DTT allocated to members of the JV group within their respective returns. Where a payment is made against the liability of a member of a JV group, this will reduce the liability for that member in relation to both groups.
It would be helpful if further iterations of the guidance on JVs could include more detailed examples.
Stephanie Mullins, Slaughter and May
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