UK implementation of Pillar Two

This article was first published by Bloomberg INDG for Bloomberg Tax on 22 September 2022.

Reproduced with permission from Copyright 2022 The Bureau of National Affairs, Inc. (800-372-1033) www.bloomberg.com.

James Ross of Taylor Wessing discusses the U.K. approach to Pillar Two to date, including comments on the consultation document issued by the government on the transposition of the OECD proposals into U.K. law. This contribution was last updated on September 10, 2022, to reflect the release of a response document and some draft legislation expected to be included in the 2022/2023 Finance Bill.

As of early September 2022, the U.K. remains likely to be one of the pacesetters in implementing the Pillar Two or Global Anti-Base Erosion (GloBE) proposals of the Organisation for Economic Co-operation and Development (OECD), which will establish a 15% global minimum tax rate. This is by no means certain, however, since the newly elected Prime Minister, Liz Truss, might decide to defer or abandon the proposal— although she has not made any formal statement to that effect and the assumption must be that the government will remain committed to the policy.

Following a consultation on the proposals early in 2022, the government published a response document1 together with draft legislation2 on July 20, 2022. This legislation is expected to be included in the 2022/23 Finance Bill, which will be published after a budget statement in the autumn and would be expected to pass into law in the spring of 2023.

In the meantime, however, the government had acknowledged that the complexity of the rules necessitated a delay in their implementation. Rather than coming into force on April 1, 2023, it is now anticipated that the legislation will first apply to accounting periods beginning on or after December 31, 2023. The tax imposed under these provisions will be known as "multinational top-up tax".

The consultation response reaffirms the government's desire to stick closely to the common approach agreed at the OECD, and the consultation has not resulted in any fundamental changes to the structure of the legislation or its scope. The draft legislation is, however, lengthy, which reflects the complexity involved in translating the OECD framework into detailed computational provisions.