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Tax Directors & Finance Teams – Do you need to register for Pillar 2?

LATEST UPDATE

Groups within the scope of Pillar 2 in the UK will need to register with HMRC within 6 months of the Group’s first accounting period starting on or after 31 December 2023. For example, Groups with a year end of 31 December 2024 will need to register with HMRC by 30 June 2025.

WHAT IS PILLAR 2?

The UK’s adoption of the OECD Pillar 2 rules, in particular the Multinational Top-Up Tax (MTT) and Domestic Top-up Tax (DTT), will apply to companies with accounting periods beginning on or after 31 December 2023, where the consolidated group annual turnover is greater than €750m in 2 of the previous 4 accounting periods.

Companies within the scope of Pillar 2 who have an effective rate of tax on their profits of less than 15% in any jurisdiction, may be liable to a top-up tax to effectively tax them at a rate of 15%.

TAX IMPACT FOR UK COMPANIES

Finance and tax directors of UK companies’ part of multinational groups should be aware that Pillar 2 will bring additional reporting obligations for UK companies, which will include: 1) assessing whether there is a domestic top-up; and 2) assess whether a top-up tax is due in respect of overseas jurisdictions.

REPORTING OBLIGATIONS

There will be several new reporting obligations for qualifying companies including:

Registration Notification Returns Tax Payable Financial Statements Disclosure
Companies / Groups must register with HMRC within 6 months of the year end of their accounting period Annual UK return / overseas return notification, to confirm entities top-up tax liabilities must be submitted to HMRC within 15 months of accounting period end (18 months for first return). Payment of the UK top-up tax liability due 15 months after the end of the accounting period end (18 months for first return). Periods beginning on or after 1 January 2023 will be required to disclose the expected impact of Pillar 2.

SAFE HARBOUR PROVISIONS

There are certain transitional safe harbour provisions that can mitigate a Group’s exposure to a UK top-up tax. The transitional rules will apply through to 2026 and should assist qualifying Group’s in complying with the legislation.

For any jurisdiction that does not meet a safe harbour, a detailed GloBE income calculation will be required.

HOW CAN MENZIES HELP YOU?

    1. Assess whether your Group is within the scope Pillar 2.

    1. Determine whether you are liable to a Pillar 2 top-up tax or whether any transitional safe harbours can be relied on.

    1. Conclude on whether disclosure should be made in the Group financial statements documenting the approach to Pillar 2

    1. Most importantly, consider whether your existing tax strategy is practical and effective.

If you have any further queries in relation to Pillar 2 or your approach to international tax planning, please contact Declan O’Connell if you have any specific queries or contact us via the form below.

 


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