On March 31, 2025, the United Kingdom House of Commons released Statutory Instrument No. 406/2025, detailing the implementation of the Multinational Top-up Tax Regulations 2025 in line with Pillar Two. The regulations specify the territories considered Pillar Two territories and list the corresponding effective dates. In addition, the Instrument specifies which taxes are to be treated as domestic top-up taxes for each territory, and their respective effective dates. The above rules shall have effect on April 21, 2025, and will apply for accounting periods starting on or after December 31, 2023.
To access the Statutory Instrument, click here.
Starting March 31, the UK tax authority will send out new notices to companies that fall under the global minimum tax regime. This is the fourth update from His Majesty’s Revenue and Customs (HMRC) to tax agents. In previous communications, HMRC informed multinational companies about their obligation to report, even if no tax is due. The global minimum tax, part of the Pillar Two agreement, imposes a 15% tax on multinationals with annual revenues over €750 million ($973 million). Companies in the UK that operate in countries without the 15% tax will need to pay a top-up tax in the UK. The tax will apply to periods beginning on or after December 31, 2023, with payments due in mid-2026. Additionally, the order provides details on how APAs can be terminated. This order took effect on the same day and will be applied starting with the 2024 fiscal period.
To read on the public statement on the matter, click here.
In January 2025, the UK updated its rules on implementing the global minimum tax, specifically around excluded entities and the conditions for top-up charges. The Tax Authority (HMRC) clarified that a minimum corporation tax of 15% will apply to large multinationals, and permanent establishments can qualify as excluded entities if the main entity does not own the establishment. These excluded entities are not included in the Global Anti-Base Erosion (GloBE) rules under the OECD’s global tax deal. The changes, effective retroactively for accounting periods after December 31, 2024, are expected to benefit most groups. Additionally, the method for applying domestic top-up tax has been revised, with different approaches based on whether the top-up is determined for a member group or a separate entity.
To read more on the amendments, click here.
The UK Tax Authority (HMRC), has released new guidance for senior staff managing transfer pricing risks, referred to as “risk leads,” and specialists. This document helps risk leads, such as tax compliance managers or finance directors, understand their responsibilities in managing tax risk.
Specialists, who are tax professionals, receive advice on identifying and mitigating risks. The guidance emphasizes the importance of keeping detailed records to ensure compliance and reduce uncertainty during tax inquiries. It is important to mention that it does not change the existing transfer pricing policies. Instead, it offers practical advice on risk areas and maintaining real-time information and suggests creating a “supporting information file” for documentation.
This guidance is to be considered alongside future legislative changes in UK tax law.
On September 12, 2024 the UK Tax Authority and Customs (HMRC) launched a consultation on additional draft guidance for the Pillar Two Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT). This guidance addresses several important issues, including the application of MTT and DTT to accounting periods starting on or after December 31, 2023.
In addition, it clarifies that taxpayers in the U.K. are subject to the MTT if they are the responsible party within a qualifying multinational group, corporation, or partnership. The guidance further explains the transitional safe harbor rules, with certain exceptions for fully domestic groups. Additionally, it confirms that DTTs delivering similar results as Pillar Two are classified as Qualifying Domestic Minimum Top-up Taxes (QDMTTs). Comments are open until October 23, 2024.
To access the details and specifics of the additional draft, click here.