UK Government has published guidance on preparing for the two new taxes introduced in the UK as part of the international response to the challenges of digitalization.
In October 2021, the UK and over 135 other countries agreed as part of the OECD Inclusive Framework to a two-pillar solution to reform the international corporate tax framework in response to the challenges of digitalization.
Pillar Two of this solution, known as the Global Base Erosion (GloBE) rules, requires a group with consolidated annual revenues of more than EUR 750 million to pay a minimum 15 percent tax on its profits in each jurisdiction it operates in.
The government had announced two new taxes as part of the UK adoption of the OECD Pillar Two rules: the Multinational Top-up Tax (MTT); and the Domestic Top-up Tax (DTT). These will apply to accounting periods that begin on or after December 31, 2023.
MTT will require all groups with both UK and non-UK entities and sufficient consolidated revenue to register with the tax authority. A charge may arise on UK parent members within such a group, where a UK parent member has an interest in an entity in a non-UK jurisdiction, and the group’s profits arising in that jurisdiction are taxed below the minimum rate of 15 percent.
DTT will require all groups with UK entities and sufficient consolidated revenue to register with the tax authority. A charge may arise on UK members within a domestic or multinational enterprise group where UK profits are taxed below the minimum rate of 15 percent.
Groups will have UK obligations even if they do not have MTT or DTT liabilities. These obligations will apply to both UK-headed and non-UK headed groups irrespective of whether the jurisdiction of the Ultimate Parent Entity implements Pillar Two.
The tax authority is developing a new online service to enable businesses to meet their MTT and DTT obligations. This will include the ability to register, file returns, and make payments.
The first stage will allow taxpayers to register for the new taxes and make a payment on account if they wanted to. The tax authority is aiming to complete this by Spring 2024, well in advance of the registration deadline, which is six months from the end of the accounting period in which the taxpayer became a qualifying group.