On 11 January 2022 the UK launched a consultation on the implementation in the UK of the OECD agreement on Pillar 2, the global minimum tax.

The consultation is looking for views on the implementation and administration in the UK of the OECD’s Pillar 2 Model Rules. Views are sought on how the Model Rules are to be transposed into UK law; how to design the administration of the rules; and issues that need to be tackled during the implementation.

The consultation is also looking for views on the introduction of a UK domestic minimum tax (DMT); and stakeholders are also invited to comment on wider reforms to the existing UK measures arising from the OECD reports on base erosion and profit shifting (BEPS).

Simplification

The OECD is to do further work in 2022 on safe harbours, with a view to drawing up simplified reporting obligations for businesses if they are located in a jurisdiction where there is a low risk that their effective tax rate (ETR) would fall below the minimum rate. The consultation document outlines some of the possible simplification approaches and asks for comments on them.

One possibility is to use a simplified ETR calculation based on data in the country by country (CbC) report, allowing a group to qualify for the safe harbour if its ETR is above a specified CbC report safe harbour minimum rate. This could be set higher than the 15% global minimum rate in the main rules, to allow for differences in the computation of global income and adjusted taxes in the CbC report.

Domestic Minimum Tax

The government is looking at the possibility of introducing a domestic minimum top up tax (DMT) in the UK. Although generally based on the Pillar 2 rules, this would allow the UK to impose a top-up tax rather than permitting a foreign jurisdiction to charge top up taxes on low-taxed profits of the group’s UK entities.

The DMT would ensure that any additional tax charged under Pillar 2 on UK economic activities and profits would benefit of the UK Treasury. The DMT could also reduce compliance time and costs for groups headquartered in the UK as they would not be liable to the undertaxed payments rule (UTPR) in other countries in relation to their UK domestic operations.

Next steps

Comments are invited from interested parties by 4 April 2022. The UK government then expects to publish draft legislation on implementing Pillar 2 in the summer months of 2022.

At a later date, the UK government will also consult with stakeholders on the detailed design of Pillar 1 of the OECD agreement as it will apply in the UK. This will cover the provisions of the multilateral convention to implement Pillar 1, and details of the domestic legislation required in the UK.