L-Day: UK Pillar Two implementation marches on

21 July 2022

Tax enthusiasts will have plenty to read on the beach this summer following yesterday’s publication of the UK Government’s summary of responses to its consultation on Pillar Two implementation, together with draft legislation for what is to be known as the “multinational top-up tax”.

The consultation response

There are no major new policy announcements.

  • The summary of responses reiterates the Government’s announcement first made on 14 June 2022 that the Income Inclusion Rule (IIR) will commence from 31 December 2023, rather than 1 April 2023 as originally planned.
  • It continues to leave open the question of when the Undertaxed Profits Rule (UTPR) might be implemented, stating that will be clarified in a later update that will take account of international developments.
  • The Government reiterates that it believes there is a strong case for introducing a Domestic Minimum Tax (DMT), but reserves its decision on whether and when to implement one pending other countries’ progress in implementing the Pillar Two rules.

In the chapter on wider reforms the government indicates that it is willing to review the UK’s international corporate tax system post-Pillar Two implementation to identify opportunities for rationalisation. However, that point is some years away and the scale of reform that the government might have appetite for is unclear.

The draft legislation

The legislation, which is intended to be included in Finance Bill 2022-23 in the Autumn, runs to 116 pages. It covers the IIR but not the UTPR (although the rules for calculating top-up tax liabilities should be relevant to both), and includes lengthy rules around reporting and administration.

While the legislation is clearly intended to be very faithful to the OECD Model Rules, Parliamentary Counsel have effectively re-drafted those rules in language more characteristic of UK statute. That raises the possibility that there may be inadvertent deviations on some points of detail, however the legislation will give the Treasury the power to make amendments by statutory instrument to correct any such anomalies.

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