The His Majesty Revenue & Customs (HMRC) has introduced amendments to the Finance Bill 2024-2025 concerning Pillar Two of the OECD/G20 International Framework, which establishes a global minimum tax rate for multinational enterprises. These amendments aim to align UK tax legislation with international standards and incorporate provisions from the OECD’s June 2024 Administrative Guidance.

Key Amendments

• Undertaxed Profits Rule (UTPR): The amendments introduce the UTPR into UK domestic law. This rule ensures that multinational groups with revenues exceeding €750 million pay an effective tax rate of at least 15% on profits in each jurisdiction where they operate. If the effective tax rate falls below this threshold, a top-up tax is applied. The legislation provides for an 8-step method approach to determine the amount of allocation.
• Multinational Top-Up Tax (MTT) and Domestic Top-Up Tax (DTT): The amendments extend the UK’s existing multinational and domestic top-up taxes to include the UTPR. This extension ensures that any top-up tax not collected under other rules is still collected in the UK.
• Technical Adjustments: The amendments include technical adjustments to the calculation of substance-based income exclusion amounts, allocation of profits and covered taxes of flow-through entities, and other areas to align with the OECD’s guidance.

These changes are designed to ensure that large multinational enterprises contribute a fair share of tax in the UK, aligning with the global minimum tax framework established by the OECD/G20 Inclusive Framework.