Pillar 2 is designed to ensure that large multinational groups (MNGs) pay a global minimum effective tax rate of 15% across multiple jurisdictions. This represents a significant change to international corporate taxation and brings new compliance and reporting obligations with it.
Understanding whether your group falls within scope is the first step towards managing compliance obligations, assessing potential top-up tax exposures and avoiding reporting challenges.
What is the aim of Pillar 2?
Part of the Organisation for Economic Cooperation and Development (OECD)/G20 Base Erosion and Profit Shifting (BEPS) 2.0 project, Pillar 2 aims to ensure large MNGs pay a minimum effective tax rate of 15% in each jurisdiction where they operate, reducing opportunities for profit shifting between countries.
In the UK, these rules have been implemented via the introduction of the Multinational Top-Up Tax (MTT) and the Domestic Top-Up Tax (DTT).
Who is in scope and what are the compliance requirements?
A group may be within scope of UK Pillar 2 if:
- The worldwide group has consolidated annual revenues of at least €750 million in two or more of the last four accounting periods.
- It has at least one UK entity or taxable presence.
- It is part of an MNG, or in some cases a large domestic group, which falls within the above criteria.
For groups within scope, Pillar 2 is not a one-off compliance exercise. Ongoing monitoring, data collection, calculations and reporting may be required across multiple jurisdictions.
What to do if your business is in scope
If your group is within scope of the Pillar 2 requirements, acting early can reduce compliance risks and provide more certainty regarding reporting obligations. Businesses within scope should consider the following steps to prepare for ongoing compliance:
- Establish your Pillar 2 compliance obligations – Identify whether there are registration, reporting and filing requirements across relevant jurisdictions.
- Assess the potential impact across the group - Explore whether there are any jurisdictions where top-up taxes could arise and learn how their implementation of Pillar 2 rules could affect the group's overall tax position.
- Review existing systems and processes – Determine whether the information required for GloBE calculations can be captured accurately in all jurisdictions.
- Consider transitional safe harbours – If available, these can simplify compliance in the early implementation stages and decrease the need for detailed calculations in some jurisdictions.
Why early preparation matters
Even where no additional tax liability is expected, many organisations are finding that compliance with Pillar 2 requires access to new data, updated processes and greater coordination between tax, finance and reporting teams. Taking action early can help reduce implementation challenges and avoid last-minute reporting pressures.
We’re here to help
If you’re unsure whether your group is within scope for Pillar 2, or would like support with assessing your obligations, modelling impacts or preparing for reporting, please contact one of our corporate tax specialists or get in touch with your usual Azets adviser.
