Imposition of Top Up Tax

The charging provisions deal with which entity actually pays top-up tax, how much they pay and where they pay it.

There are two key rules – the income inclusion rule (IIR) and the under-taxed payments rule (UTPR). The IIR is the primary charging provision, with the UTPR acting in most cases as a form of back stop.

Basic Steps

The broad process for applying the charging provisions is:

1. Identify the parent entities that will be liable for the top-up tax under an IIR

2. Identify the amount of top-up tax that the parent entities will be liable for

3. Identify any left-over top-up tax that will be subject to the UTPR

4. Allocate any remaining top-up tax to relevant jurisdictions

Note that we say ascertain the parent entities liable for top-up tax under an IIR. This is because there may be more than one eg a UPE and a partially-owned parent entity (POPE).

An IIR offset mechanism applies to prevent double taxation.