The UK tax authority, His Majesty’s Revenue and Customs (HMRC), published amendments to the Finance Bill 2024-2025 on 27 January 2025, introducing changes to the UK’s Pillar Two regulations.
The bill includes modifications to the Undertaxed Profits Rule (UTPR), specifying how the UTPR top-up tax liability is allocated among UK entities. It also introduces provisions for joint venture groups.
An amendment allows a permanent establishment (PE) to qualify as an excluded entity, even if the main entity does not have an ownership interest in it. This applies retroactively to accounting periods beginning on or after 31 December 2023. A PE refers to a business presence in a foreign country (the host country) that creates income or value-added tax obligations in that jurisdiction. Tax authorities use PE status to determine whether foreign enterprises operating within their jurisdiction are subject to taxation or qualify for exemptions.
Provisions from the OECD’s June 2024 Administrative Guidance have been incorporated, covering the allocation of cross-border current and deferred tax expenses and adjustments to deferred tax liability (DTL) recapture rules.
Earlier, HMRC released the Explanatory Notes outlining the government amendments, which focus on matters related to Pillar Two, to the Finance Bill 2024-25 on 19 December 2024.
