Understanding Pillar 2 obligations for US owned UK businesses
The OECD’s Pillar 2 rules introduce a global minimum tax rate of 15%, but the United States has not adopted these rules. Instead, US multinational groups continue to apply existing domestic regimes such as GILTI and the Corporate Alternative Minimum Tax (CAMT).
This divergence creates significant complexity for US-headquartered groups with operations in the UK and other jurisdictions that have implemented Pillar 2.
Below, we break down what this means in practice and the steps UK entities within US-parented groups should take now.
Key points for US-headquartered groups
1. The US approach remains outside Pillar 2
The US continues to rely on its own anti‑deferral and minimum tax regimes:
GILTI (Global Intangible Low Taxed Income)
- Uses a blended calculation across all foreign jurisdictions.
- This contrasts sharply with GloBE, which requires separate jurisdiction‑by‑jurisdiction effective tax rate calculations.
CAMT (Corporate Alternative Minimum Tax)
- Applies a 15% minimum tax to certain US corporations.
- However, CAMT is based on financial statement income, not the OECD’s GloBE rules.
- It therefore does not qualify as a GloBE-compliant minimum tax.
The result is that US compliance differs from OECD BEPS, and other countries may impose top-up tax.
2. The Treasury’s “side‑by‑side” package
The US Treasury proposed a side‑by‑side framework that would operate adjacent to the OECD rules without formally adopting them. In January 2026, the OECD announced an agreement over the side-by side package, with the next steps being for member states to legislate the recommendations.
The side-by-side package aims to reduce compliance burden for US parented groups by treating US as eligible parent entities for the purposes of determining GloBE return responsibility, meaning that occasions where a multinational group must prepare multiple GloBE returns should be less common, however local obligations for subsidiaries (such as domestic top-up tax returns) will remain.
The earliest implementation for the side-by-side package will be for accounting periods starting on 1 January 2026, meaning that preceding accounting periods will be unaffected.
For US‑parented multinational groups, the consequence is clear: dual compliance obligations will remain, and UK entities may face filing and potential top‑up tax liabilities despite US‑level taxation.
3. Top‑up tax risk in other jurisdictions
Under the existing rules, even if a US group complies fully with GILTI or CAMT, UK (and other overseas) tax authorities may still impose top‑up tax where:
- A local entity’s jurisdictional effective tax rate falls below 15%, and
- No qualifying IIR or QDMTT exists in the parent jurisdiction (absent the side-by-side package, the US currently lacks both in the Pillar 2 sense).
This means US groups cannot assume exemption from Pillar 2 rules simply because they meet US requirements.
Practical considerations for UK entities with a US parent
A UK entity must prepare and submit a UK Pillar 2 return where:
- The group meets the €750m threshold, and
- The parent jurisdiction (the US) does not file a GloBE‑compliant IIR.
This includes:
- A UK Overseas Return Notification to HMRC, setting out the GloBE filing position; and
- A UK Pillar 2 return, which may be nil or may include top‑up tax depending on the group’s structure.
Assessing double taxation risk
Without mutual recognition between GILTI, CAMT and GloBE:
- Income may face multiple layers of minimum tax.
- Timing differences between US and OECD rules can exacerbate mismatches.
- Transitional safe harbours may mitigate exposure in early years but should not be relied on without careful modelling.
Next steps for UK entities in US-parented groups
1. Confirm whether the group is in scope
- Revenue threshold: €750m in at least two of the last four years.
- Identify whether any UK entities fall within Pillar 2 filing obligations.
2. Determine filing responsibilities
- Understand whether the UK entity must submit:
- an Overseas Return Notification,
- a nil Pillar 2 return, or
- a return involving actual top‑up tax.
We’re here to help
Navigating Pillar 2 compliance is especially complex for US‑headquartered groups, given the divergence between US domestic rules and OECD requirements.
Our specialist team at Azets can help you:
- Asses the transitional safe harbours available to the UK entities
- Engage with US parent teams effectively
If you would like tailored support, get in touch via the form below
