MTT10220 | Scope: Excluded entities: Definitions of 'non-profit organisation' and 'qualifying non-profit subsidiary'

From HM Revenue & Customs · Multinational Top-up Tax and Domestic Top-up Tax

The definitions of non-profit organisation and qualifying non-profit subsidiary are set out in section 234 of Finance (No.2) Act 2023.

Non-profit organisation

An entity is a non-profit organisation if the following conditions are all met:

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it is established and operated in the territory in which it is located exclusively for religious, charitable, scientific, artistic, cultural, athletic, educational, or other similar purposes, or is a professional organisation, business league, chamber of commerce, labour organisation, agricultural or horticultural organisation, civic league, or an organisation operated exclusively for the promotion of social welfare, substantially all of the income from the activities it carries out for its non-profit purpose is exempt from income tax in the territory in which it is located, there are no shareholders or members with a right to its income or assets, the income or assets of the entity cannot be distributed to, or applied for the benefit of, a private person or non-charitable entity, except where either: that activity is pursuant to the purpose of the non-profit, it is payment or payment in kind to the recipient, or it is payment for the fair market value of property acquired by the non-profit, when the entity ceases to exist, its assets must become the assets of a non-profit organisation, or governmental entity in the same territory, and it does not carry on a trade or business, other than one directly related to the purpose for which it was established.

Qualifying non-profit subsidiary

A group may have entities that are treated as qualifying non-profit subsidiaries in a period if:

the revenue of the group does not exceed €750 million for that period, disregarding the revenue of members that are non-profit organisations, qualifying service entities, or qualifying exempt income entities, and
the revenue of members that is not so disregarded constitutes less than 25% of the total revenue of the group.

Where these criteria are met, any entity that is 100% owned by a non-profit organisation (or a combination of non-profit organisations) is a qualifying non-profit subsidiary.

Where the main entity of a permanent establishment meets these criteria, the permanent establishment is also a qualifying non-profit subsidiary. Should the ‘legal main entity’ be different from the ‘main entity’ then each legal main entity should also meet these criteria (see MTT41025).

This preserves the benefit of the gift aid regime by ensuring that non-profits with trading activity are not charged MTT unless the trading activity would meet the revenue threshold by itself.

Example

NPO Group has a non-profit organisation as its ultimate parent. The group contains a number of entities that are classified as qualifying service entities and qualifying exempt income entities.

The total revenue of the group is €900 million.

The total revenue of the group members that are non-profit organisations, qualifying service entities, or qualifying exempt income entities, totalling €650 million, is to be regarded. This leaves a remainder of €250 million.

NPO Group cannot have entities that are treated as qualifying non-profit subsidiaries because:

although the group has revenue of €250 million when the revenue of the relevant entities has been disregarded, which is less than €750 million,
the revenue of the members that has not been disregarded (€250 million) is 28% of the total revenue of the group (€900 million), which exceeds the 25% threshold.

Amendment in Finance Act 2025 and Finance Act 2026

Section 127 was amended by FA25. This amendment was made retrospective. Section 232ZA, which impacts section 127, was introduced by FA26.
This guidance page reflects the current version of the legislation. Consult FA26 for legislation applicable to prior periods if the retrospection election does not apply.