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Pillar 2 Global Minimum Tax Rate – the UK implementation


Globalisation and the digitalisation of the economy poses problems for the international tax landscape. In response, the OECD produced two proposals for reform grouped under two pillars: revised profit allocation and nexus rules (Pillar 1) and a global anti-base erosion proposal for a minimum level of taxation (Pillar 2).

Pillar 2 aims to ensure that large multinational groups (broadly, groups with consolidated global turnover of >€750m) pay tax at a minimum effective rate in every jurisdiction that they operate, irrespective of the headline corporate income tax (CIT) rate locally or the availability of tax reliefs, by charging a top-up tax.

It consists of two mechanisms for collecting tax: the income inclusion rule (IIR), which is the main rule, and the undertaxed profits rule (UTPR), which is the backstop to the IIR and ensures that the charge will be collected in every relevant jurisdiction.

Finance (No 2) Act 2023 received Royal Assent in July 2023, bringing the following rules into effect for accounting periods beginning on or after 31 December 2023:

  • A multinational top-up tax (MTT) to implement the IIR
  • A domestic top-up tax (DTT) which will be a qualifying domestic top-up tax (QDMTT) for the purposes of the Pillar 2 rules

The UK Government has stated that it remains committed to introducing the UTPR, the second of the charging mechanisms, but has confirmed that it will not apply to accounting periods beginning before 31 December 2024.

HMRC has published draft partial guidance on the MTT and DTT, seeking comments on the draft guidance and suggestions on what stakeholders would find useful in forthcoming guidance.

The deadline for a group’s first information returns, notifications and top-up tax payments is 18 months from the end of the accounting period. A group with an accounting period ending 31 December 2024 (which is likely to be the first period for which the rules apply for many groups) will have until 30 June 2026 to deal with their Pillar 2 filing and payment obligations in the UK.

Preparing for the top-up tax

While the rules have not yet come into effect, large corporate groups would be well advised to take steps now to ensure that they are suitably prepared. The following are some examples of steps that could be taken to prepare for the introduction of the rules:

  1. Establish which entities are part of the same worldwide group, including the identity of the ultimate parent.
  2. Establish the size of the worldwide group. To be within the scope of the MTT and DTT, a worldwide group needs to have exceeded consolidated annual revenues of €750m in at least two of the preceding four accounting periods. On implementation, this is likely to involve a review of consolidated revenues generated in accounting periods going back to 2020.
  3. Finance teams (with support from their advisers) should work to understand the detailed information that will be required for the calculations so that they can understand data gaps and work to resolve these in good time.
  4. Review the extent of the likely compliance burden, including any payment and filing responsibilities or deadlines, so that internal responsibilities can be allocated ahead of implementation.
  5. Review the potential impact of the staggered pattern of implementation of the Pillar 2 rules across jurisdictions. The primary taxing rights are determined by which jurisdictions have enacted the IIR legislation and so the top-up tax could be payable in different jurisdictions from one accounting period to the next.
  6. Review the potential application of the transitional safe harbour provisions for periods beginning on or before 31 December 2026 and ending on or before 30 June 2028. Subject to meeting the qualifying conditions, where a valid election is made, UK group members will not have any top-up amounts for the relevant accounting period. This could substantially reduce a group’s UK compliance obligations when first entering the regime.

It is important that large groups take steps to understand and prepare for the implementation of the Pillar 2 regime in the jurisdictions in which they operate. The rules are complicated and preparing for their introduction will inevitably absorb a significant amount of time for finance teams.

If you have any further questions on this please contact Adam Kefford at or Chris Rodgers at or call +44 1392 667000.

FEATURING: Adam Kefford
Adam is based in the Exeter office within the tax consultancy team. His expertise covers corporate and business taxes, and he spends much of his… read more
FEATURING: Chris Rodgers
Chris is a partner, working in the corporate and international tax teams. He advises on complex corporate tax planning for large UK and international groups… read more
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