The OECD Pillar 2 framework establishes a global minimum tax regime which will apply to multinational groups with consolidated revenue over €750m. For those that exceed this threshold, the rules aim to ensure income is taxed at a global minimum tax rate of 15%.

UK adoption of the rules

The UK adoption of the Pillar 2 rules introduces two new taxes: multinational top-up tax (“MTT”) and domestic top-up tax (“DTT”).

A group will be within the scope of the additional taxes if the consolidated financial statements of the ultimate parent entity show revenue in excess of €750million in any two of the previous four periods, effective from 31 December 2023.

The new taxes

MTT will be charged on UK parent members when a subsidiary is located in a non-UK jurisdiction and the profits arising in that jurisdiction are taxed below the 15% minimum rate.

DTT applies the rules of MTT to the UK operations of groups and certain entities to ensure that UK entities will be taxed at 15%. This means that the UK entities will meet the minimum rate, ensuring that the UK, rather than any other jurisdiction, will collect all of the top-up taxes in respect of UK profits.

Reporting

If a group is within the scope of the new taxes, a group member must register with HMRC within 6 months of the end of the accounting period where they become qualifying.

The filing company will be required to submit a self-assessment return and information return to HMRC for each qualifying period. The first information return must be submitted to HMRC by 30 June 2026.

How we can help

The implementation of Pillar 2 will mean significant compliance and data gathering requirements for groups and UK companies of multinational groups.

The US and the other six G7 countries (Canada, France, Germany, Italy, Japan, and the UK) have come to an agreement that US businesses will be excluded from the imposition of any Pillar Two taxes. This has been agreed in exchange for the removal of section 899 from the Republican party’s One Big Beautiful Bill Act which would have sought to increase US taxes on payments to overseas persons and businesses, essentially in response to the perceived ‘unfair’ taxes being levied on US businesses.

This announcement adds to continued uncertainty over the stability of Pillar 2 over the longer term, given the US failure to adopt the rules and the possibility of resistance from other countries to this latest agreement. Furthermore, the mechanics how of a US exemption from Pillar 2 would work are still to be determined, meaning how this will affect UK reporting requirements as well as the global information reporting remains to be seen.

We can help you determine whether your group is within the scope of the new additional taxes and support with Pillar 2 compliance.