“Pillar Two” is an OECD initiative introducing a global minimum tax rate of 15% for large multinational enterprises with consolidated group revenue above 750 million Euro. It is so-called as it is the second pillar of a ‘two-pillar solution’ to reduce base erosion and profit shifting by multinationals. It is also referred to as the Global Minimum Tax (GMT) and the Global Anti-Base Erosion (GloBE) Rules.

The impact of the Pillar Two rules is that groups in scope should suffer an effective tax rate of at least 15% in every jurisdiction in which they operate. If they do not, then they should suffer a ‘top-up’ tax to bring the effective tax rate up to 15%.

UK Implementation

The UK implemented Pillar Two into its domestic legislation in the Finance (No.2) Act 2023. Therefore, this is current law and effective for groups in scope for periods beginning on or after 31 December 2023.

The UK law applies to both international groups and wholly domestic groups that meet the threshold test.

Registration and compliance with HMRC

All groups which are in scope must register with HMRC if they have at least one entity in the group located in the UK. It does not matter whether the UK company is a parent entity or a small subsidiary of the group, a registration is required with HMRC if there is a UK company and if the group is in scope. Registration is required even if no ‘top-up’ tax is anticipated.

The responsibility for registration defaults to the ultimate parent entity, but we expect in most cases they will delegate that to the UK company (or one of the UK companies in the group, if there are more than one). The registration is completed online and cannot be delegated to your Tax Agent.

Groups must register with HMRC within 6 months of the end of the first accounting period that is in scope. For example, for the year ended 31 December 2024, the registration deadline is 30 June 2025.

Compliance beyond registration

Whilst the most pressing deadline is registering with HMRC, that is only the beginning of the compliance journey for Pillar Two.

Groups will need to gather all the relevant data and perform a complex calculation to determine whether they could have additional tax to pay under these new rules.

There are some transitional safe harbours, which should make the calculations in the initial years simpler, if the conditions are met. We recommend that groups explore this first, before delving into the full calculations. Groups that have submitted a Country-by-Country report for the relevant period can use this report to assess whether they meet any of the safe harbours. If a safe harbour test is met, no top-up tax will be due under the safe harbour provisions and a full calculation will not be required.

If the ultimate parent of the group is a UK company then a full return may need to be filed with HMRC. If the UK company is a subsidiary of a foreign parent, then the full return may be filed with the tax authority of the country of residence of the parent and that tax authority can share it with HMRC. In the latter case, an Overseas Notification Return must still be submitted to HMRC to inform them where the full return was filed. This is similar to the notification process that was in place when the Country-by-Country reporting rules first came out.

It is worth noting that the US has not adopted the Pillar Two rules, therefore if a UK company has a US ultimate parent, it may have to file a full return in the UK and any additional top-up tax may also fall to be due in the UK.

Recommended next steps

If you are part of a large multinational group but are not sure if the group has exceeded the revenue thresholds, then the first step will be to undertake a review of whether the group is in scope for 2024.

If you are aware that your group is large enough to be in scope then it is important to register with HMRC before the deadline. In the situation where the UK is not the parent jurisdiction, we recommend discussing internally with the group tax team to check who is going to be responsible for registering and being recorded as HMRC’s point of contact with respect to these rules.

If you are in scope, then you will need an internal process to gather the relevant data to calculate whether any additional top-up tax is going to be due.

We can assist with reviewing whether a group is in scope of the rules and help you to navigate the additional compliance requirements in the UK. We can also assist with assessing whether you meet any of the transitional safe harbours through reviewing your latest Country-by-Country report.

We are collaborating closely with other Moore Global firms on how the Pillar Two rules are being implemented in different countries. We can introduce you to contacts in any other country where you have operations so that you can understand registration requirements in other countries.

Get in touch

Contact our Specialist International Tax team to discuss how we can help you navigate the complexities of Pillar Two with confidence.