Reporting requirements for large multinational groups - Pillar two

Pillar Two rules make sure that multinational enterprises pay their fair share of tax, regardless of where they operate and where they make their profits. The rules were agreed by the OECD (Organisation for Economic Co-operation and Development) member countries (the UK is a member of the OECD). 

Pillar Two: What are the rules?

In summary, a top-up tax may be applicable as a result of the Pillar Two rules. There are two types of UK top-up tax: 

• UK Multinational top-up tax:
  This tax is relevant for multinational groups that have their headquarters in the UK. They may be required to pay a UK top-up tax if a foreign jurisdiction in which their subsidiaries are operating has an effective rate of tax of less than 15%. UK members of groups with non-UK headquarters may also be required to pay a UK top-up tax if the jurisdiction of their headquarters does not implement the Pillar Two rules or if it implements them after the UK. 
  
  
• UK Domestic top-up tax:
  The UK domestic top-up tax ensures that UK members of a multinational group have an aggregate tax rate of at least 15% as a result of UK taxes only. This will be creditable against any multinational top-up tax arising under the multinational top-up tax rules. It also applies to large groups operating exclusively in the UK and standalone entities. 

The aggregate effective tax rate for each subsidiary in the territory that they are located in must be calculated. If this is less than 15% in any of the territories, a top-up tax amount will be payable. The top-up tax is calculated under the ‘Income Inclusion Rule’(IIR) (for accounting periods beginning on or after 31 December 2023) and additionally the ‘Under-taxed Profits Rule’(UTPR) (for accounting periods beginning on or after 31 December 2024) (The IIR has precedence if both apply). There are specific calculations in the legislation to allocate the top-up tax amounts to the responsible members of the group. 

There are some elections (safe harbours) that can be made so that territories are treated as not having top-up tax amounts, if specific conditions are met.

Who do the rules apply to?

A multinational group is a consolidated group which has at least one member that is located in a different territory to the other members. Members can include Permanent Establishments. Certain entities (such as government entities and non-profit organisations) are excluded from the definition of a multinational group. 
The UK top-up tax rules will apply to a multinational group if:

• the group exceeds the annual revenue threshold of €750m in at least two of the 
  previous four accounting periods (Condition A); and
• one of the members of the group is located in the UK (Condition B). 

If the rules apply, there are specific UK compliance requirements (including registration with HMRC). 

A group must register with the service if it meets these criteria, even if it does not have to pay any top-up tax.

What are the reporting requirements?

• Registration with HMRC:
  A multinational group must register with HMRC when it becomes a qualifying multinational group. The deadline for this is 6 months after the end of the first accounting period in which the rules apply (i.e. when the annual revenue threshold condition is met and one of the group members is in the UK).

  For companies with a 31 December 2024 year end, the deadline to register with HMRC as a multinational group is 30 June 2025.

   The group can nominate a filing member (which doesn’t have to be a UK company). The filing member is by default the ultimate parent entity, but another group member can be nominated.

  The registration must be completed online by a group company on the HMRC website, using a Government Gateway User ID for the organisation (this can be created if one does not already exist). Information about the group (where the entities are located, their accounting periods and contact and postal address details) will need to be provided. After registration, the organisation will be able to log in and manage its account.

• Returns
  For every accounting period that a group is in scope of the Pillar Two rules, it must file:

1. A Global Information Return (GIR): The deadline for submitting the annual GIR is 15 months from the end of the accounting period. However, this is extended to 18 months after the end of the first period in which the group is within the scope of Pillar Two.
   
   For companies with a 31 December 2024 year end, the first GIR return will be due by 30 June 2026.
   
   (note that if a GIR will be filed by the group in an overseas jurisdiction, and this will be provided to HMRC, a full UK GIR may not be required).

2. A Self-Assessment Return: The deadline for submitting the annual self-assessment tax return is also 15 months from the end of the accounting period. However, this is similarly extended to 18 months after the end of the first period in which the group is within the scope of Pillar Two.
   
   For companies with a 31 December 2024 year end, the first self-assessment return will be due by 30 June 2026.

It should be noted that agents will not be able to register groups via HMRC online (the group’s HMRC credentials will need to be used). HMRC have indicated that it is a group company obligation and should be completed internally, rather than outsourced to an agent. We understand that large companies may outsource this, but generally these requirements are to be carried out internally (and are not to be carried out by agents).

What can Shorts do to help?

It is evident from the HMRC guidance that they expect that Pillar Two reporting to be dealt with in house by large multinational groups, rather than being completely outsourced to agents. At Shorts we expect clients to deal with any registration and reporting at group level, where the size limits are breached.

Its important to note that there are other aspects related to Pillar Two that UK entities will need to consider and deal with as appropriate, and the above is a simplified outline summary. There may be overseas elements in addition to deal with. It may be that parent entities deal with the majority of aspects.