Groups that file annual Country by County Reporting (“CBCR”) returns or notifications should expect a letter from HMRC outlining an introduction to the new OECD Pillar 2 rules. What does this mean and how can businesses get ready?
RECAP ON OECD PILLAR 2
The UK’s adoption of the OECD Pillar 2 rules, 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 has annual revenues of more than €750m.
| REPORTING | TAX PAYMENTS | IMPACT |
| Even for groups without an additional top-up tax liability, there will be a requirement to submit a Pillar 2 Return to HMRC (if they are the reporting entity) or notify the entity and jurisdiction responsible for filing the return. | The rules will aim to implement a global minimum tax of 15% on a multinational group’s profits, in each jurisdiction in which it operates in. | Groups will need to consider these rules in their operations and current structure, from both a compliance and reporting perspective and also the impact on any tax planning. |
WHAT SHOULD BUSINESSES DO NOW?
The draft legislation and guidance is published and awaiting Royal Assent and HMRC are writing to companies that they believe will be within the scope of the tax(es).
Although there is no immediate action from a reporting perspective, Groups should consider the following actions:
- Assess the likely future impact of Pillar 2 to determine whether any additional tax is due along with reporting obligations.
- Identify whether additional disclosures may be required in upcoming financial statements.
- Consider the impact on the Group’s current structure and tax strategy.
- Determine what further work is needed (e.g., revisiting transfer pricing policies).
HOW CAN MENZIES ASSIST?
| TRANSFER PRICING STRATEGY | CROSS-BORDER TRANSACTIONS |
| Review transfer pricing strategy to ensure tax efficient and compliant with global rules | Consider any opportunities and risks including Permanent Establishment, Corporate Interest Restriction, Withholding Tax obligations etc |
| ANTI-AVOIDANCE RULES | LARGE CORPORATE REPORTING |
| Identify whether any anti-avoidance legislation is already applicable such as Diverted Profits Tax, Controlled Foreign Companies etc | Assistance with reporting obligations including: CBCR Returns and notifications Senior Accounting Officer Tax Strategy |
Please speak to your usual Menzies contact or Emma McCartney if you would like further assistance.
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