UK delays Pillar 2 of global tax rules to December 2023

The UK Government plans to delay until December 2023 the implementation of Pillar 2 legislation on a global minimum level of tax.

Ahead of a formal response in the summer, the Financial Secretary to the Treasury, Lucy Frazer, has sent respondents an interim update on the implementation of pillar two.

The start date will be pushed back from 1 April 2023 to accounting periods beginning on or after 31 December 2023, acknowledging the need for a sufficient lead-in time before the rules are implemented in the UK. 

Implementing the rules ahead of other countries could also put UK businesses at a competitive and administrative disadvantage.

She stated: "UK Pillar 2 legislation will first apply to accounting periods beginning on or after 31 December 2023.

"This will give businesses an appropriate lead-in time before implementation and allow the policy to benefit from progress on the international process."

The institute of Chartered Accountants in England and Wales said in a briefing note that rules will apply to accounting periods beginning on or after 31 December 2023, in response to concerns raised during the consultation process.

The 136 countries of the Organisation for Economic Co-operation and Development (OECD) inclusive framework reached agreement on a package of reforms designed to manage the taxation of large multinationals at an international level in October 2021. The measures, referred to as pillars one and two, were due to be implemented in 2023.

Pillar one is about where businesses pay tax. It involves a partial reallocation of taxing rights over the profits of the largest and most profitable multinational businesses to the jurisdictions where consumers are located.

Pillar two is designed to ensure that multinational groups pay a minimum rate of tax in every jurisdiction they operate in, through a framework of rules known as the Global anti-Base Erosion (GloBE) rules - therefore, how much tax they pay.

The government consulted on the implementation of pillar two in the UK; that consultation closed on 4 April 2022.