Minimum tax: maximum pace set by UK

The UK Government has today launched a consultation on domestic implementation of the OECD’s Pillar Two minimum tax proposals. Coming only a few weeks after the OECD published model minimum tax rules on 20 December, and ahead of the OECD publishing commentary on those rules, today’s announcement demonstrates the government’s intent to implement the rules at the earliest opportunity – even if that means bending the normal policy-making process.

What does the consultation document say?

The consultation will run until 4 April 2022. The document makes clear that stakeholders shouldn’t expect material changes to the substantive policy in the OECD model rules, which is settled. Where there are open policy questions they are about aspects that aren’t prescribed in the model rules such as administration and the possible adoption of safe harbours.

Following the consultation the Government plans to publish draft legislation at “L-Day” in the summer, which will then be included in Finance Bill 2022-23. The primary minimum tax rule - the Income Inclusion Rule - is intended to come into effect from 1 April 2023, with the backup Undertaxed Profits Rule coming into effect from 1 April 2024.

Alongside the internationally-agreed rules the Government is also considering introducing a domestic minimum tax (DMT) from 1 April 2024. The DMT would ensure that the UK always taxes the UK profits of multinationals that meet the €750m revenue threshold at no less than the 15% minimum rate. That will avoid the possibility of other countries charging Pillar Two top-up taxes on groups’ UK profits. Partly that protects the UK Exchequer’s interests – why forgo collecting tax only for another country to do it? - but it also has potential benefits for businesses, which may prefer to pay the minimum tax directly to the UK rather than to an assortment of other countries.

The final chapter of the consultation document examines whether Pillar Two will allow existing BEPS measures to be simplified but dampen expectations, stating that the government does not intend for significant reforms at this time.

Readers wanting a precis of the Pillar 2 rules may wish to consult our BEPS 2.0 hubpage.