Autumn Statement 2022 - full steam ahead for UK implementation of global minimum tax

The Chancellor has confirmed that the UK Government is to press ahead across the board with UK implementation of the new global minimum tax. 

As expected, Jeremy Hunt repeated the Government’s commitment to implementing the Income Inclusion Rule (IIR) in the UK for accounting periods beginning on or after 31 December 2023.

There were also two significant advances on this position.

1. Firm commitment to implementing a Qualified Domestic Minimum Top-up tax (QDMTT)

The UK will introduce a QDMTT that will require large groups - including those operating exclusively in the UK - to pay a top-up tax where their UK operations have an effective tax rate of less than 15%. The intention is to implement this rule on the same time scale as the IIR.

2. Statement of intention on Undertaxed Profits Rule (UTPR) implementation

The Government intends to implement the UTPR (the backstop rule to the IIR), but with effect no earlier than accounting periods beginning on or after 31 December 2024.

The QDMTT in particular is worthy of further comment, as set out below. But first a short refresher on the nature and role of QDMTTs is useful.

QDMTTs – a reminder

The commitment to a QDMTT is not entirely unexpected but is a clear development in the UK’s position. The draft UK legislation published earlier this year made no provision for a QDMTT (focusing rather on the IIR), although the Government’s response to its consultation had indicated it was likely one would be introduced.

Generally, QDMTTs will not affect how much tax a business ends up paying, only where it is paid.

While the IIR enables countries to collect top-up tax where others have failed to tax MNE profits at the minimum rate, QDMTTs ensure that this failure doesn’t occur in the first place by ensuring a given jurisdiction collects sufficient tax from its own in-scope taxpayers.

This is attractive to jurisdictions where the relevant tax take would otherwise be collected abroad under the IIR. Commitment to a QDMTT by the UK Government indicates a recognition that many in-scope groups operating in the UK are likely to be headquartered in implementing jurisdictions (so it makes sense for the UK Exchequer to beat those jurisdictions to the punch).

Complementing the IIR with a QDMTT also allays potential criticism that a jurisdiction may be seen to be taxing the foreign operations of its multinationals more stringently than their domestic operations.

UK QDMTT – next steps

Importantly, the Autumn Statement confirmed that the QDMTT will extend to exclusively UK-based groups, as well as multinationals. This will be particularly relevant for purely domestic groups who may have to date assumed the new minimum tax rules would have no effect on them.

It is also significant that the Government has aligned the implementation timetable with that of the IIR which, with draft implementation published and having been subject to consultation for some months, is much more developed. In order to meet the resulting deadlines, it would not be surprising to see further draft legislation published before the calendar year is out.

Apart from confirmation that it will apply to “large groups”, additional detail provided was sparse. It is likely that the threshold will be €750m to mirror the scope of the IIR.  

Tax take

Yesterday was also the first public announcement of the predicted aggregate UK revenue raise from implementing the above measures (IIR, QDMTT and UTPR), estimated to be around £2.3bn a year by 2027-28. This is material in absolute terms, but is unlikely to form more than a small part of the revenue raising package that the government has announced to help close the UK’s fiscal gap.