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Some of Europe's brightest legal minds look at the tax issues across Europe which could impact multinational businesses.

| 6 minutes read

Full steam ahead for the UK’s implementation of the global minimum tax rules

When is the best time to consult on the UK’s implementation of the OECD/IF GloBE model rules published on 20 December 2021 with the aim of requiring large multinational groups to pay a minimum 15% level of tax in each jurisdiction in which they operate?

Now, according to the UK government, which launched a consultation on 11 January 2022, requesting comments (on the practical and technical aspects, not on the policy) by 4 April.

As I explained in my earlier blog, the commentary on the model rules is not yet available (it is expected in Q1) and there are still a number of key technical details to be agreed at international level. These include safe harbours and simplification, the interaction with Pillar One (the reallocation of taxing rights of some of the profits of the largest and most profitable MNEs to market jurisdictions) and how the GloBE model rules should interact with US GILTI. Affected multinational groups are going to face considerable process and compliance impacts so the UK government has decided to involve business now to iron out any issues with the UK implementation (even though the model rules themselves are still work in progress) in order for the UK to meet the ambitious internationally agreed timetable for implementation. 

The consultation runs to 71 pages so I have just highlighted below some of the key points. The Income Inclusion Rule (IIR) part of the package would be included in Finance Bill 2022 with draft legislation being published in summer 2022 to have effect from 1 April 2023. The consultation also invites views on the UK’s implementation of the Undertaxed Profits Rule (UTPR) (previously referred to as the "Undertaxed Payments Rule") and on introducing a Domestic Minimum Tax (DMT) in the UK, both of which would be introduced from 1 April 2024 at the earliest.

The starting point is that the GloBE model rules are a common approach: if a jurisdiction decides to implement such rules they must respect the model rules to ensure consistency of implementation. The UK accordingly intends to implement the rules as closely to the model rules as possible although there may be limited areas where the rules need to be adapted and, indeed, there are some areas where the model rules permit flexibility.


The UK intends to adopt an IIR which will apply to MNEs whose consolidated annual revenues are greater than €750m. It will apply to all such MNEs headquartered in the UK and to UK intermediate parent entities of foreign headquartered groups where entities are more than 20% owned by minority investors or controlled by parent entities that are not located in a jurisdiction that has implemented Pillar Two. The UK IIR will impose a top-up tax on these UK parent entities based on their interests in overseas subsidiaries and branches located where the MNE has an overall effective tax rate in the jurisdiction below 15%.

By introducing an IIR in the UK, UK headquartered groups will not be subject to the backstop UTPR in respect of their foreign profits and will only be subjected to the IIR at the level of foreign intermediate parent entities in relatively limited situations where those entities are partially owned by third parties.

The UK has decided not to apply the IIR to sub-€750m groups headquartered in the UK (even though the GloBE model rules permit this) because such groups are less likely to have substantial overseas operations and are less likely to pose the risks Pillar Two is designed to protect against. Understandably, the UK does not wish to risk damaging the UK’s attractiveness as a parent location for limited gains and it is recognised that smaller groups will not have developed systems for Country-by Country Reporting which underpins several areas of the model rules and so may be less able to absorb the compliance and administrative costs of applying the rules.


The UK's UTPR would be limited to UK entities of groups with revenue of more than €750m and which are headquartered outside the UK. It would apply only in relation to the group’s overseas profits if the MNE's ultimate parent entity is not subject to an IIR, there are low-taxed entities within a group for which a top-up tax is due and the top-up tax has not been fully collected or charged under the IIR in other jurisdictions. It could also apply to the extent that there are low-taxed profits in the jurisdiction in which the foreign-headquartered group is parented. The top-up tax payable in the UK would be calculated by multiplying the remaining top-up tax due for a low-tax jurisdiction by the ratio of the MNE’s tangible assets and employees in the UK over the MNE’s tangible assets and employees in other jurisdictions with a UTPR.

The model rules leave it to jurisdictions to decide domestically how the UTPR should apply but the outcome must be to produce an additional cash tax expense in the relevant jurisdiction equal to the top-up tax allocated to it. The UK seeks views on two broad approaches: denying a corporation tax deduction on payments made by constituent entities or introducing a new charge on a UK constituent entity based on the top-up tax allocated to the UK. The consultation notes the latter may be simpler to operate than denying deductions within the existing corporation tax rules.

Simplification/safe harbours

International agreement has not yet been reached on this issue but chapter 10 of the consultation explains some of the approaches previously considered in OECD discussions. The UK government asks to what extent businesses would prefer to maximise simplicity even if it means the safe harbour is unavailable in some low-risk situations, or alternatively trade off some of the simplification benefits for a design which more accurately measures the risk of low-tax outcomes under the GloBE rules.


The consultation identifies two policy rationales for the introduction of a UK DMT: revenue protection and simplification. 

A UK DMT would reduce £ for £ the amount of top-up tax to be collected under the IIR or UTPR. It would allow the UK to impose top-up tax rather than a foreign jurisdiction to charge top-up taxes in relation to any low-taxed profits of a group’s entities in the UK. As far as business is concerned the same amount of tax is paid, but it is paid to the UK Exchequer rather than lining another country’s coffers. 

A UK DMT would also reduce compliance burdens on UK headquartered groups by preventing them from being subject to the UTPR in multiple countries in respect of their UK domestic operations. 

The government is considering whether the DMT should apply to foreign groups too or just to UK headquartered groups.

Interaction with existing BEPS measures

The GloBE rules are intended to be applied after other anti-avoidance rules are applied and seeks to tax any remaining low-taxed profits in the jurisdiction.

How many layers of anti-avoidance do we need? Isn’t it time to remove some BEPS measures? Not according to the consultation. The government’s view is that the BEPS measures address risks to the UK’s tax base which are not directly addressed by the GloBE rules and so the BEPS measures continue to play an important role in protecting the UK’s tax base for the wider population, not just those MNEs with over €750m global revenue. There is a glimmer of hope for eventual consolidation of measures, however, as the consultation suggests this may be revisited once Pillar Two is fully implemented and it becomes clear what level of protection it provides for the UK tax base.

Acting swiftly or too fast?

I can see the merits of consulting on implementation now to give business more time, but my worry is that, if the UK is determined to stick to the ambitious timetable for implementation, even when it is not clear whether other jurisdictions will be able to, complex legislation will be rushed through the process before other jurisdictions get their act together only for that legislation to be tweaked repeatedly in subsequent years to make the legislation work as intended. Have we not learnt from previous eagerness to be first (or, I suppose, in this case, potentially second after the EU) to implement international measures? 

Something else which concerns me is that the UK has maintained throughout that Pillars One and Two are a package and that it would not implement one without the other, yet here we are, pushing ahead with Pillar Two when it is not yet certain that Pillar One will follow, despite everyone’s best intentions, because without the US, Pillar One is expected to fall away.

UK shows continued leadership through acting swiftly to launch consulting on domestic implementation


slaughterandmay, zandrews, oecd, pillar two, minimum tax, international tax reform