The OECD’s Pillar Two rules represent one of the biggest changes to international corporate taxation in decades for very large groups. This year will see the rules move from theory to practice, with the first of the new tax returns being required to be filed by 30 June.

However, the rules continue to evolve, and in early January the OECD published another update, which introduces some simplifications and some important changes for US-parented groups.

A brief recap: what is Pillar Two?

Pillar Two introduces a global minimum effective tax rate of 15% for large multinational groups. The rules apply to groups with consolidated revenues of at least €750 million in two out of the last four years. The aim of the rules is to reduce profit shifting from high tax to low tax jurisdictions and ensure that large groups pay a minimum level of tax in each jurisdiction where they operate.

If profits in a particular country are taxed below 15%, the Pillar Two rules mean that a “top-up tax” must be charged somewhere to bring the effective tax rate up to the minimum level. This top-up tax can be charged under different mechanisms, depending on the structure of the group and the countries involved.

While the underlying framework is global, the rules are implemented through domestic legislation, so companies that have operations in the UK run through either a UK company or UK branch need to be aware of the UK rules.

UK Implementation

The UK was an early adopter of Pillar Two. The legislation implementing the Multinational Top up Tax (MTT) and the UK Domestic Minimum Top-Up Tax (DTT) came into force for accounting periods beginning on or after 31 December 2023.

The Undertaxed Profits Rule (UTPR) became effective one year later, for periods beginning on or after 31 December 2024.

Groups in scope are required to register with HMRC 6 months after the end of the first period that they were in scope. For many groups this was 30 June 2025.

Upcoming filing deadline

Pillar Two compliance is not just about paying top-up tax. Even where a group expects its effective tax rate to exceed 15% in each jurisdiction, filing obligations still apply. A group with any UK operations will have to file 2 additional tax returns with HMRC.

For groups with a 31 December 2024 year-end, the first UK Pillar Two returns are due by 30 June 2026. This is only a few months away, so we are urging clients to check that they have a plan and process in place to be able to file on time.

The new “side-by-side” package and US parented-groups

The US has not signed up to Pillar Two. This has been the source of much confusion for US-parented groups to date in terms of how they are supposed to manage both the domestic rules as well as Pillar Two in the other jurisdictions in which they operate. In January 2026, the OECD released what is being referred to as the “side-by-side” package to clarify the position.

This new package recognises that the US rules are sufficiently similar to the Pillar Two rules that they can operate alongside Pillar Two. A US-group can make an election to apply the side-by-side safe harbour and this will deem all top-up tax to be zero, apart from any qualifying domestic top-up tax (QDMTT).

However, it must be noted that:

• US-headed groups are still required to comply with Pillar Two filing obligations for 2024 and 2025, including the preparation and submission of a Global Information Return.
• From 2026, the side-by-side package does not remove the need to perform Pillar Two calculations or gather the underlying data to demonstrate that the minimum tax rates are being met, as well as make all required tax return filings.

Get in touch

Pillar Two is not a “one-size-fits-all” exercise and we can support you with whatever your particular challenges are. For example, we can:

• Assess whether your group is in scope;
• Model potential exposure to top-up taxes using your latest country by country reporting data; and
• Advise whether the transitional safe harbours may be applicable to your group, to simplify the calculations required.

We will also be able to prepare and submit your UK Pillar Two filings, once HMRC’s system is finalised and able to accept filings.

Get in touch with your usual contact or our International Tax Team.