UK government has published draft legislation to implement the undertaxed profits rule under its domestic law.
Finance (No.2) Act 2023 implemented a multinational top-up tax and domestic top-up tax, the UK version of the OECD’s Pillar Two Global Anti-Base Erosion rules (Globe rules).
The UTPR is one of two charging mechanisms within the multinational top-up tax regime. The primary mechanism, commonly known as the Income Inclusion Rule (IIR), was introduced in the existing Act.
The rules set out an approach that has been designed to ensure that large multinational enterprises pay a minimum level of tax in each territory in which they operate. The minimum level of tax that has been agreed under the rules is 15 percent. If necessary, a top-up charge is applied to bring the effective tax rate up to 15 percent.
The UTPR works as a backstop to ensure that any amounts of multinational top-up tax that are not collected under an IIR will still be collected. These “untaxed” amounts are identified and then allocated between territories that enforce the UTPR. The allocation is made according to an allocation key that reflects the relative proportion of tangible fixed assets and number of employees in each of those territories.
The UTPR provisions have effect as appointed by the Treasury in regulations, which will not be before accounting periods beginning on or after December 31, 2024.