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Groups will have UK obligations even if they do not have Multinational Top-up Tax (MTT) or Domestic Top-up Tax (DTT) liabilities. These obligations will apply to both UK-headed and non-UK headed groups irrespective of whether the jurisdiction of the Ultimate Parent Entity implements Pillar 2.
Although the UK has enacted legislation to implement the Pillar 2 rules, there is uncertainty about how the UK government might respond if the US, under the Trump presidency, imposes measures on adopting territories. Consequently, the UK's adaptation of these rules could be impacted. This article focuses on the UK's current adaptation of the rules.
The BEPS (Base Erosion and Profit Shifting) Pillar 2 framework aims to ensure that large multinational enterprises (MNEs) with consolidated revenue exceeding EUR 750 million pay a minimum tax rate of 15% in every jurisdiction they operate. The UK has integrated Pillar 2 into its tax legislation with the introduction of:
These rules will take effect for accounting periods beginning on or after 31 December 2023. For example, a group with a 31 December year end the first period that they will fall within the rules would be the year ended 31 December 2024.
Draft UK legislation has also been published to incorporate the Undertaxed Profits Rules (UTPR), as announced in the Autumn Statement 2023. These rules will take effect for accounting periods beginning on or after 31 December 2024. The UTPR ensures that any top-up taxes not paid under another jurisdiction's IIR or QDMTT are charged in the UK if the MNE group includes UK participants.
Groups may assume that where they are not UK headquartered nothing needs to be filed with HMRC which is incorrect. UK obligations will apply to both UK-headed and non-UK headed groups irrespective of whether the jurisdiction of the Ultimate Parent Entity implements Pillar 2.
The below diagrams provide some examples of typical groups and the typical requirements for each scenario.
A summary of key reporting deadlines is shown in the diagram and sections below.
UK-based groups or foreign groups with UK operations must register with HMRC if they are within the scope of the Pillar 2 rules. The registration process is the same for both DTT and MTT and a single registration can be done for both where required. The filing member must register with HMRC no later than six months after the end of the first accounting period in which an in-scope group falls within the Pillar 2 rules. i.e. if a Group, including UK companies falls within the Pillar 2 rules in the period to 31 December 2024, they will need to register with HMRC by 30 June 2025.
The filing member is required to submit an information return detailing the group’s global Pillar 2 tax calculations to HMRC for each accounting period in which the group qualifies for MTT, unless the return has already been submitted to another authority outside the UK with which HMRC has an information sharing agreement (a ‘qualifying authority’). In that case, an overseas return notification can be submitted instead (see below). The return must be submitted to HMRC within 15 months of the end of the accounting period. However, in the first qualifying accounting period this filing deadline is extended to 18 months.
The overseas return notification will include the name of the jurisdiction to which the information return has been submitted and the name of the group member that submitted it. HMRC will obtain a version of the information return for that period from the qualifying authority using its automatic exchange of information processes. The return must be submitted to HMRC within 15 months of the end of the accounting period. However, in the first qualifying accounting period this filing deadline is extended to 18 months.
The filing member of a group can submit a below-threshold notification (BTN) to HMRC. The BTN will be made once and remain in place until it becomes invalid. Its effect is to disapply the obligation to submit a self-assessment return but not the information return. A BTN can be submitted to HMRC for a specified accounting period when the filing member considers that the group is not a qualifying group in that accounting period and is not expected to become a qualifying group again in any subsequent accounting period.
In light of the BEPS Pillar 2 UK requirements for Groups with UK businesses, MNEs should prioritise a review of their structures to identify whether they fall within scope. This initial assessment is crucial for determining registration obligations and the subsequent filing of GloBE returns to ensure full UK compliance with the new international tax standards.
For more information on how Crowe can help you understand the filing requirements, contact Jonny Korta or your usual Crowe contact.
Disclaimer
The information set out in this publication is for information purposes only and is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. It does not constitute advice to undertake a particular transaction. Appropriate professional advice should be taken on specific issues before any course of action is pursued. Any advice provided by a Crowe tax specialist will follow only after consideration of all aspects of our internal advice guidance.
