New rules have been introduced to address profit shifting by multinational enterprises (MNEs) across jurisdictions. The OECD (Organisation for Economic Cooperation and Development) Pillar Two framework will act to ensure that large multinational groups pay a minimum level of tax in each jurisdiction in which they operate, and applies to accounting period commencing from 1 January 2024.
The rules will affect MNEs with group consolidated turnover of more than €750 million in at least two of the four proceeding periods, and acts to impose a top up tax on profits in jurisdiction with an effective tax rate of less than 15%.
It is generally the ultimate parent’s responsibility to register, report and pay any top up tax required to bring its subsidiary(ies) up to a 15% effective tax rate. However, the UK has also introduced a UK domestic minimum top up tax alongside to ensure that any top up tax payable is collected in the UK, which applies to wholly UK groups as well as MNEs.
Where the group only consists of UK subsidiaries it is likely that the registration, calculations and reporting (where required) will fall to an overseas parent further up the chain, however, the UK domestic top up tax will still need to be considered. This could be particularly relevant to companies which access the patent box regime for a large proportion of their profits.
Further, if the group has a UK intermediary and the entities above this have not yet implemented Pillar ll or have lower reporting thresholds, then the reporting requirement may fall to the UK. The first step, therefore, will be determining which group entity has responsibility for operating the rules.
The rules are extremely complex, running to over 100 pages of legislation, so we would recommend that professional advice is sought if your group is potentially within the rules. Click the button below to access the Summer edition of our Talking Tax publication and read more about the topics discussed in this article.
