Immediate action may be required to comply with OECD Pillar 2 legislation
The UK has formally enacted legislation under the Organisation for Economic Cooperation and Development’s (OECD’s) Pillar 2 framework, introducing the Multinational Top-up Tax (MTT) and Domestic Top-up Tax (DTT) for accounting periods beginning on or after 31 December 2023. If your group falls within scope, action may be required without delay.
What is BEPS Pillar 2?
Pillar 2 is part of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), which introduced a global minimum tax rate of 15% across multiple jurisdictions. These measures apply to groups with consolidated annual revenues exceeding €750 million.
In the UK, two new taxes were introduced as part Pillar 2:
- The multinational top-up tax (MTT) – applies to groups with both UK and overseas operations
- The domestic top-up tax (DTT) – applies to groups with UK-only operations
If your group is UK-only, you must register for DTT. If your group includes entities both within and outside the UK, you must register for both MTT and DTT.
A UK branch is treated as an entity for these purposes. In other words, merely having a UK branch will bring a multinational group within the scope of registration with HMRC.
Ultimate parent entities in jurisdictions that have not implemented Pillar 2
Some countries have signed up to Pillar 2, but have not yet enacted legislation to bring the rules into effect. There is also a subset of countries that have not signed up to Pillar 2, notably the US. Where the ultimate parent entity (UPE) resides in a country that has not signed up to Pillar 2, any top-up tax due on subsidiaries must be collected by the country of the intermediate holding company. This may mean that a UK subsidiary can be liable to account for top-up tax of its subgroup.
US side-by-side agreement
The US Secretary of the Treasury set out a proposed ‘side-by-side’ solution under which US parented groups would be exempt from the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) in recognition of the existing US minimum tax rules to which they are subject. This covers the UK multinational top-up tax and the UK undertaxed profits rule. The UK Treasury issued a press release on 28 June 2025 confirming its involvement with the agreement.
Information return
The filing member is required to submit an information return to HMRC for each accounting period in which the group qualifies for MTT, unless the return has already been submitted to another authority outside the UK with which HMRC has an information sharing agreement. In that case, an overseas return notification can be submitted instead. HMRC will then obtain a version of the information return for that period from the qualifying authority using its automatic exchange of information processes.
Self-assessment return
The filing member of a registered group must submit a MTT self assessment return to HMRC for each accounting period. The self-assessment return will contain information on the group’s UK charge to MTT and DTT.
What you need to do
To ensure timely compliance, please note the following UK-specific responsibilities:
- Registration requirement: All in-scope groups must register with HMRC via the Pillar 2 online service within six months of the end of their first applicable accounting period.
- Filing obligations: Groups must submit a GloBE Information Return (GIR) or an Overseas Return Notification (ORN), along with a UK self assessment return detailing MTT and DTT liabilities within 18 months of the end of their first applicable accounting period.
- Record-keeping: Accurate documentation must be maintained to support all filings, elections, and tax computations.
- Filing member designation: The UPE or a nominated UK entity must act as the filing member and liaise with HMRC.
New financial statement disclosures
Multinational enterprises (MNEs) must now disclose jurisdictions with potential exposure to top-up tax in their financial statements, integrating these calculations into their financial close processes. The complexity of Pillar 2’s global calculations necessitates changes to consolidation procedures, as local entities must supply granular data for group-level reporting.
Disclosures are required both before and after the rules come into force. Prior to enactment, groups must estimate and disclose expected impacts. Once effective, top-up tax must be quantified and included in tax provisions. Auditors will scrutinize both the estimates and the underlying data, especially where no liability is reported. Reliance on Country-by-Country Reporting (CbCR) safe harbours is common, but qualifying status must be substantiated.
The OECD continues to refine the framework, but national deviations are emerging. Pillar 2 is a live tax, requiring integration into governance and training to ensure proactive compliance across transactions and restructurings.
We’re here to help
If your group operates in the UK and meets the revenue threshold, it is recommended that the Pillar 2 registration process is initiated immediately and internal systems are reviewed for data readiness. If you would like to discuss this further or require assistance with these requirements, please speak to a member of our specialist Corporate Tax team or get in touch with your usual Azets adviser.
Please also note that for Group’s within the threshold of Pillar 2 and CbC Reporting, there is now more strict and prescriptive legislation in terms of how and when to prepare transfer pricing documentation (in the Master File, Local File format).
