The introduction of the Pillar Two global minimum tax rules marks one of the most significant shifts in international tax policy in decades. Developed under the OECD’s Base Erosion and Profit Shifting (BEPS) project, these rules are now being rolled out across major global economies – including the UK, Japan, Germany, and France, impacting thousands of multinational enterprises (MNEs).
For UK subsidiaries of international groups, the clock is ticking. Navigating this complex and rapidly evolving landscape demands proactive planning, robust data readiness, and access to expert advice and technology solutions.
WHAT IS PILLAR TWO AND WHY DOES IT MATTER FOR UK SUBSIDIARIES?
Pillar Two imposes a global minimum tax of 15% on large multinational groups, aiming to eliminate the incentive of profit shifting to lower-tax jurisdictions. If the Effective Tax Rate (ETR) of a jurisdiction where the group operates falls below 15%, a top-up tax will likely apply, bringing it up to the minimum level.
UK subsidiaries of international groups are directly impacted, especially if the parent company or other entities within the group operate in low-tax environments or use permanent tax adjustments such as Patent Box reliefs. The UK has adopted Pillar Two, meaning affected groups must prepare for new registration, compliance and reporting requirements with HMRC.
WHO’S IN SCOPE OF PILLAR TWO?
The rules apply to multinational groups or even single-jurisdiction groups if they meet the following criteria:
- Consolidated group revenue exceeding €750 million in at least two of the previous four accounting periods
- Operations in countries that have adopted Pillar Two (which now includes most major economies, though notable exceptions like India and the USA remain)
UK subsidiaries may be part of an in-scope group even if their own operations are relatively small. If the Ultimate Parent Entity (UPE) is located in a non-participating jurisdiction, compliance responsibilities may shift to other entities within the group.
KEY COMPLIANCE OBLIGATIONS FOR UK SUBSIDIARIES
- Registration Deadlines
UK entities must register with HMRC if they fall within scope. The deadline to register is expected to vary based on the first fiscal year in which the rules apply. Late registration could lead to penalties. The current guidance is that registration needs to be done within 6 months of an accounting period end – e.g., for a 31 March 2025 year end, registration should be made on or before 30 September 2025. - Filing the GloBE Return
The Global Anti-Base Erosion (GloBE) return contains the calculations showing whether top-up tax is due. Ideally, the UPE will file this in its jurisdiction, but if that jurisdiction hasn’t adopted Pillar Two, another group entity may need to step in. Where a GloBE return is filed in another jurisdiction, an overseas return notification (ORN) may be filed with HMRC to confirm that the group’s obligations have been met, however this is subject to conditions to fulfil for this to be valid. - Domestic Minimum Top-Up Tax (DMTT)
In addition to the GloBE return, domestic top-up taxes (like the UK’s own DMTT rules) may apply. Where the GloBE return is filed in the UK, the DMTT is covered in this submission, however local jurisdictional requirements may be needed elsewhere as these operate independently and may require separate calculations and submissions.
PLANNING FOR PILLAR TWO: ESSENTIAL STEPS FOR UK SUBSIDIARIES
- Understand Your Group’s Structure and Data Readiness
Groups must undertake a thorough data-mapping and cleansing exercise to ensure the availability and accuracy of financial data across all jurisdictions. This is essential for calculating the jurisdictional ETR and determining the top-up tax, if any.
Trial runs of the GloBE calculations can identify gaps or inconsistencies in existing data sources and highlight jurisdictions that may trigger additional tax liabilities.
- Use Qualifying CbCR Data for Safe Harbour Elections
Temporary safe harbour provisions allow businesses to avoid full-blown calculations in certain cases. However, this relies on the use of qualifying Country-by-Country Reporting (CbCR) data. If the data doesn’t meet required standards, the safe harbour election could be invalid, resulting in unexpected tax exposure.
- Know Your Local Requirements
Compliance obligations differ by jurisdiction. UK subsidiaries must be familiar not only with UK DMTT and GloBE obligations but also with the filing and reporting rules in all other jurisdictions where their group operates.
Key requirements to track include:
- Filing deadlines
- Required disclosures
- Election notifications
- Currency conversions and thresholds
THE COST OF NON-COMPLIANCE
Failing to plan for Pillar Two isn’t just an administrative headache; it’s a real financial risk.
- Unexpected Tax Bills: Groups may face top-up taxes in jurisdictions they didn’t anticipate, especially if their data isn’t robust or timely.
- Penalties: Delays in filing, incorrect submissions, or failures to register can all lead to financial penalties and reputational damage.
- Audit Implications: Misstated tax provisions or ETRs can attract scrutiny from both internal and external auditors, leading to restatements and extended audit cycles, leading to incurring overruns on your audit fees and disruption to your finance function
- Cash Flow Disruption: Poor planning can disrupt treasury and working capital strategies, especially where large cash tax payments are due at short notice.
HOW WE HELP
We work closely with UK subsidiaries and their international parents to offer flexible, tailored Pillar Two solutions. Our model is built around three core pillars:
Proactive, Coordinated Advice
We help clients plan ahead, offering:
- Pre-implementation assessments
- Jurisdictional mapping
- Filing strategy alignment
- Advice on safe harbour elections, registration deadlines, and local rules
We act as the link between the UK subsidiary, the global tax team, and overseas advisors to ensure alignment and clarity.
Data-Driven Software Partnerships
Our team partners with leading software providers whose tools are continually updated to reflect live changes to the GloBE framework. This allows for:
- Automated ETR calculations
- Centralised data handling
- Scenario modelling for future planning
- User-friendly dashboards and audit trails
Co-Source
Whether your internal tax function wants to stay hands-on or requires some external support, we offer:
- Co-source support: working alongside your team, supplementing your capacity and expertise
- Connecting you with software providers who can provide licensed access to their fully compliant Pillar 2 software solutions for generating the GIR and other supporting compliance filings.
We don’t just help you comply. We help you future-proof your tax function.
PILLAR TWO: WHAT’S COMING NEXT
The tax landscape isn’t standing still, and neither is Pillar Two.
- Safe harbour rules may become permanent, though subject to change in scope or thresholds
- More countries are expected to join, especially as low-tax jurisdictions come under pressure to align with the 15% minimum rate
- Additional anti-avoidance provisions are anticipated to strengthen the integrity of the regime
- The minimum tax rate itself could increase, reflecting economic shifts and policy pressure from high-tax countries
Now is the time to get your house in order.
Pillar Two is here, and it’s not going away. For UK subsidiaries of global groups, the risks of inaction are high, but with the right expertise, tools and structure, the transition can be managed smoothly.
Whether you’re at the start of your compliance journey or facing the first round of filings, get in touch. We’re here to help you stay ahead of the curve.
