The first UK reporting cycle under the OECD's Pillar Two global minimum tax rules has brought a new set of compliance obligations for large multinational groups - and businesses that have not yet considered how the rules affect their UK operations should act now.
Pillar Two represents a significant change to the international corporate tax system. Its central principle is that large multinational groups should pay an effective tax rate of at least 15% in each jurisdiction in which they operate.
For UK subsidiaries of overseas groups, however, the issue isn't limited to the amount of tax they pay. Pillar Two also introduces registration, calculation and reporting requirements that can apply even where there is ultimately no UK top-up tax liability.
Mark Taylor, Head of International at Duncan & Toplis, said:
"We've been supporting a number of overseas-headquartered groups with UK subsidiaries through their first Pillar Two reporting requirements.
"One of the key messages for businesses is that this isn't something that should only be considered where you expect to have additional tax to pay. There are reporting obligations to understand, and multinational groups need to establish how their UK entities fit into the wider group's Pillar Two position."
Broadly, the OECD's Global Anti-Base Erosion, or GloBE, rules apply to multinational groups with annual consolidated revenues of at least €750 million in at least two of the four preceding fiscal years immediately preceding the tested fiscal year.
The framework establishes a minimum effective tax rate of 15% and provides mechanisms through which additional "top-up" tax can potentially become payable where the effective rate in a particular jurisdiction falls below that level.
The UK has implemented Pillar Two through two taxes: Multinational Top-up Tax and Domestic Top-up Tax. The rules apply to accounting periods beginning on or after 31 December 2023.
For groups within scope, determining the position is considerably more involved than simply looking at the headline corporation tax rate in each country.
Mark said: "The €750 million threshold means we're talking about very substantial multinational groups, but that doesn't mean the UK operation itself has to be a large business.
"An overseas group could have a relatively modest UK subsidiary which still has obligations because the group as a whole falls within the Pillar Two rules. That's why UK businesses need to understand the position of their wider group rather than looking at their UK turnover in isolation."
This is one of the areas businesses can easily overlook.
A registered group generally needs to submit a UK self-assessment return and an information return for each relevant accounting period, unless the conditions for an alternative notification are met. HMRC also makes clear that a self-assessment return or valid below-threshold notification can be required even where a group has no Multinational Top-up Tax liability for the period.
Where a group's GloBE Information Return is filed with an overseas tax authority under qualifying central filing arrangements, and the information will be shared with HMRC, the UK filing member can instead be required to submit an Overseas Return Notification to HMRC.
That makes coordination between the UK business and its overseas parent particularly important.
The UK team needs to know what the wider group is filing, where it is being filed and what remains its responsibility in the UK.
For the first accounting period in which a group is subject to Pillar Two, the UK filing deadline is generally 18 months after the end of that accounting period. For subsequent periods, it reduces to 15 months. No return was required before 30 June 2026.
HMRC subsequently allowed returns to be submitted by 31 July 2026 without a late-filing penalty, giving affected groups additional time during the first reporting cycle.
Businesses that have missed an applicable deadline should not assume the issue disappears.
Mark said: "If a group has missed its reporting deadline, the priority should be to establish what should have been filed and deal with it as quickly as possible.
"The initial financial penalty may not necessarily be significant in the context of a multinational group, but that isn't really the main risk. The more important question is whether the group has properly assessed its Pillar Two position and whether there could be tax liabilities or wider reporting requirements that haven't yet been identified."
HMRC's published guidance confirms that penalties for late Pillar Two information returns or notifications start at £100 per return or notification where the filing is made within three months of the deadline, rising to £200 per return or notification within six months. Further daily penalties can apply where a filing remains outstanding after six months.
Pillar Two is ultimately intended to establish a 15% minimum effective tax rate for large multinational groups on a jurisdiction-by-jurisdiction basis.
This means groups need to look beyond statutory tax rates and calculate their effective tax position under the detailed Pillar Two methodology.
Importantly, the Pillar Two effective tax rate is calculated on a jurisdictional basis rather than at an individual entity level, meaning profitable entities cannot necessarily be viewed in isolation when assessing potential top-up-tax exposure.
Where the effective tax rate in a jurisdiction falls below 15%, a top-up tax may potentially arise.
However, a sub-15% effective tax rate does not automatically tell the whole story. The interaction between Qualified Domestic Minimum Top-up Tax (QDMTT), Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) ultimately determines where any residual top-up tax is paid.
In practice, the calculation is often more complex than comparing the effective tax rate to the 15% threshold, with factors such as deferred tax adjustments, reliefs and exemptions under local tax laws, transitional safe harbour provisions, and substance-based exclusions linked to eligible payroll costs and tangible assets in a jurisdiction potentially affecting the amount of Top-up Tax payable.
As a result, the effective Pillar Two outcome may differ significantly from what might be expected based solely on statutory tax rates. This creates an important distinction for multinational groups. A business may be accustomed to assessing its corporation tax liabilities separately in each country, but Pillar Two requires a much broader understanding of the group's international tax position.
It also means that businesses operating in lower-tax jurisdictions, or benefiting from particular reliefs or incentives, may need to consider how these interact with the global minimum tax framework.
The first UK reporting cycle has understandably attracted considerable attention, but Pillar Two is not a one-off exercise.
Once a group is within scope, reporting becomes part of its ongoing international tax compliance programme. After the first accounting period, the normal UK filing deadline moves from 18 months to 15 months after the end of the accounting period.
Businesses therefore need processes that can identify the required information across multiple entities and jurisdictions, establish where returns will be filed and understand which notifications or returns are still required in the UK.
Mark added: "The first reporting period has been a learning exercise for many groups, but Pillar Two now needs to become part of the annual tax timetable.
"For UK subsidiaries of overseas businesses in particular, communication with the parent group is key. You need to understand who is responsible for the calculations and central reporting, what information needs to come from the UK and what still needs to be submitted to HMRC.
"Getting those processes established now will make subsequent reporting periods much easier to manage."
Duncan & Toplis supports multinational businesses and UK subsidiaries of overseas groups with their Pillar Two obligations, providing end-to-end support from initial scoping and impact assessment through to filing and ongoing compliance. This includes safe harbour assessments, jurisdictional effective tax rate and top-up tax calculations, advice on the application of OECD guidance and local tax legislation, liaising with relevant tax authorities where required, and working proactively with stakeholders and software providers to resolve last-mile filing issues.
If your group falls within the €750 million revenue threshold, you have a UK subsidiary within a larger overseas group, or you are unsure whether your Pillar Two reporting obligations have been met or require support in determining where reporting obligations arise across the group, speak to Mark Taylor or contact your usual Duncan & Toplis adviser.
