In today’s 2023 Spring Budget, the UK government confirmed that it will include the Pillar Two Global Minimum Tax in the Spring Finance Bill 2023.
In particular, for accounting periods beginning on or after December 31, 2023, the UK will apply a multinational top-up tax, and a qualified domestic minimum top-up tax.
Draft legislation for the multinational top-up tax was published for consultation last year, but did not include a domestic minimum tax.
The Policy Paper on the Multinational top-up tax and Domestic top-up tax: UK adoption of OECD Pillar 2, states:
‘…The domestic top-up tax will introduce a new tax on UK members within a domestic or multinational enterprise group and will ensure that any top-up tax due on UK profits is collected in the UK. A top-up tax will be charged when the group’s profits arising in the UK are taxed at below the minimum rate of 15%…’
This will ensure that top-up tax arising from low-taxed UK constituent entities will be charged in the UK and not levied in a foreign jurisdiction.
The Policy Paper indicates that, in line with the draft legislation previously issued, it will just include the income inclusion rule.
Interestingly, the governments impact analysis suggests that one-off costs incurred by MNEs as a result of the UK multinational top-up tax and domestic top-up tax is estimated to be £13.7 million. This includes familiarization with the Pillar 2 rules, registering with HMRC that they are in scope of the Pillar 2 rules, updating software and systems and training and upskilling staff.
Annual costs are estimated to be £8.2 million which includes recording and receiving information from other entities within the group, performing the Pillar 2 calculations to meet reporting obligations and providing the information on Pillar 2 calculations to HMRC.
Also see: GloBE Country Guide: The United Kingdom