UK releases draft Pillar 2 legislation


The UK government recently released draft legislation concerning the UK’s implementation of the Organisation for Economic Cooperation and Development’s (OECD’s) Pillar 2 global minimum tax.


As background, in October 2021, over 130 jurisdictions — including the UK — agreed to the OECD’s two-pillar approach for overhauling international tax. Pillar 2 generally seeks to impose a 15% minimum tax on the earnings of most multinational groups with revenues of at least €750M. By deploying two interlocking rules under Pillar 2 — the income inclusion rule (IIR) and the undertaxed payment rule — income taxed at less than 15% would be targeted for additional taxation.


The OECD subsequently released guidance, including model rules, while simultaneously encouraging jurisdictions to move forward with implementation on an ambitious timeline. However, in June 2022, the UK government announced a delay to its proposed implementation, announcing the IIR under Pillar 2 will apply for accounting periods beginning on or after Dec. 31, 2023.


With the UK’s recent release of its draft legislation, the UK Treasury and HMRC have now released the full outcome of the consultation and proposed UK legislation. It is clear from the consultation response that the government remains committed to implementing the global minimum tax rules as intended. There are areas where the UK will seek to clarify certain points in its domestic legislation, however, and some issues where the UK will advocate for change or clarity at an international level before the rules come in. For additional information, see Grant Thornton UK’s recent story, “Pillar 2 tax rules: UK releases draft legislation.”



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