UK government, on July 20, released draft rules aimed at ensuring multinational enterprises (MNEs) operating within the UK pay a global minimum level of tax.
The draft rules are in line with the agreement on a 2 Pillar solution to reform the international tax framework made by the G20 — Organisation for Economic Co-operation and Development Inclusive Framework on Base Erosion and Profit Shifting (BEPS) last year.
The rules will apply to MNEs with annual global revenues exceeding 750 million euros that have business activities in the UK. A top-up tax will be charged on UK parent members when a subsidiary is located in a non-UK jurisdiction, and the group’s profits arising in that jurisdiction are taxed at below the minimum rate of 15%.
A UK parent member is an entity within the multinational enterprise group that holds a direct or indirect ownership interest in a foreign entity.
The measure will have effect for MNE groups with fiscal years beginning on or after December 31, 2023.
In October 2021, over 130 countries in the Organisation for Economic Co-operation and Development Inclusive Framework reached agreement on a 2 pillar solution to reform the international tax framework in response to the challenges of digitalization. Pillar 2 is the second of the 2 pillar solution.