New draft legislation from UK Finance Bill 2022-23

Stuart Duff

Stuart Duff

Transfer Pricing and International Tax Manager

With the UK Government recently introducing new draft legislation in the Finance Bill 2022-23, we would like to highlight three key international tax updates for you to be aware of:

  1. A new multinational top-up tax;

  2. New OECD-format transfer pricing documentation requirements; and

  3. A time limit for double tax relief on foreign nominal tax rates

Introduction of the new multinational top-up tax

This measure follows work performed by the Organisation for Economic Co-operation and Development (OECD) on the taxation of international businesses. It represents Pillar Two of the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

The measure targets the largest multinationals and is designed to provide a base-line tax rate. This thereby reduces the incentive for jurisdictions to compete with each other on tax rates.

The new multinational top-up tax will apply to the parent company (or “responsible member”) of qualifying multinational groups. A qualifying multinational group is a consolidated group where at least one of the members is not in the same territory as the others, and the group has annual global revenues exceeding €750m in at least two of the previous four accounting periods. In certain cases, the top-up tax will also apply to UK intermediate parent entities of such groups.

This legislation provides that the UK parent will be charged a UK top-up tax on their overseas subsidiaries earnings where such subsidiaries are not subject to a local jurisdiction tax rate of at least 15%.

This measure effectively introduces a base-line tax rate of 15% for the largest multinationals.

The legislation will come into effect for multinational enterprise groups with accounting periods beginning on, or after, 31 December 2023.

OECD-format transfer pricing documentation

Amendments have been made to the existing legislation on transfer pricing documentation.

The UK is moving away from the existing guidance of simply “keeping records”, and is introducing more detailed and specific documentation requirements in line with the OECD BEPS project.

The requirement for a master file providing context on the group as a whole, and local files per jurisdiction, will be familiar to multinational groups. This is established as standard operating practice in a significant number of jurisdictions worldwide (with individual jurisdictions such as Australia and the US mandating similar but distinct documentation requirements).

The changes will mean that the master file, local file, and summary audit trail questionnaire documentation must be kept and preserved.  Procedurally, further changes to the legislation provide that relevant transfer pricing documents can be requested outside a formal enquiry. The requirement for the documents to be in the “possession or power” of the UK entity when they are in “possession or power” of another person within the multinational group will also be removed.

Additionally, changes in relation to penalties mean that failure to carry out the necessary work to maintain relevant records, and produce such records on request, may be considered as an inaccuracy, which is deemed careless. This can only be resolved where the relevant taxpayer can provide evidence that the appropriate information has been prepared in advance of filing the Corporation Tax Return; or demonstrate that reasonable care was taken.

These changes will come into effect for businesses with accounting periods beginning on or after 1 April 2023.

Time limit for double tax relief on foreign nominal tax rates

There will be a small but important change to the double tax relief claims on overseas nominal tax rates. A restriction will be introduced to prevent extended time limit claims from being made where the adjustment bringing about the claim for credit is calculated by reference to a foreign nominal rate of tax, rather than an actual tax payment.

The purpose behind the amendment is to preserve the balance between taxpayers’ rights to make these claims and a requirement for reasonable time limits on such claims.

Therefore, claims can still be made where the adjustment in tax payable relates to an actual increase in foreign or UK tax, where that adjustment occurred within the last six years. Additionally, where accounting periods are under appeal or enquiry, extended time limit claims can still be made.

This change came into effect for claims arising on or after 20 July 2022.


The draft legislation conforms with the overall patterns in international taxation following the OECD BEPS project. The trend is one of the growing international harmonisations of the rules on international taxation and increased tax transparency. It is a prevention, or at least reduction, in the “race to the bottom” with regards to tax rates for multinational enterprises.

From a taxpayers’ perspective, the €750m turnover threshold is still a significant barrier to inclusion in the multinational top-up tax and mirrors the previously established turnover threshold for Country-by-Country Reporting (CbCR). It will be interesting to see if this threshold is reduced in future and any future changes will be closely monitored.

The introduction of the OECD-format transfer pricing documentation requirements brings the UK in line with most major economies and will therefore be familiar to many UK-based international businesses.

While the master file / local file documentation format may increase the administrative burden for some taxpayers, the formalisation of the UK’s transfer pricing requirements offers the opportunity to get on the front-foot in this area of international taxation.

For taxpayers currently operating with a “light-touch” approach to transfer pricing record keeping, drafting more formal documentation allows a concurrent review of pricing risk and policies to ensure that the arm’s length principle is correctly applied within the group.

Get in touch 

If you feel that any of the above may apply to your business, please feel free to get in touch with our International Tax team to discuss these changes in more detail.

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