The UK government has used the opportunity of its Autumn Statement 2022, delivered on 17 November, to confirm that the Finance Bill 2022 will include legislation introducing a 15% global minimum corporation tax rate, to have effect for accounting periods ending on and after 31 December 2023.

This will implement in the UK the “income inclusion rule” (IIR) part of Pillar Two of the OECD’s two-pillar reforms to international taxation. Broadly, the Pillar Two reforms, also referred to as the Global Anti-Base Erosion (GloBE) proposal, contemplate a framework of complex and interlocking rules to ensure that large multinationals pay a minimum tax rate of 15% in each of the jurisdictions in which they operate. In the UK, this will be referred to as the Multinational Top-Up Tax.

The UK government has also confirmed that the regime will include a qualifying domestic minimum top-up tax, allowing the UK to benefit from any top-up tax imposed. An undertaxed payment rule (UTPR) (a further, supplementary rule contemplated by Pillar 2) will be introduced with effect from 31 December 2024.

Separately, European Commission officials have very recently confirmed that political uncertainty at EU level over the Pillar Two proposals appears to have been overcome. It is now much more likely that a Directive implementing Pillar 2 in the EU will be enacted this year.

These reforms will constitute a significant shift in the global tax landscape and require considerable technical analysis and compliance work by multinationals to assess their impact on business. It is worth noting that, in the UK, the government expects these reforms to raise an additional £2.3 billion a year from 2027-28.

Although the legislation will not come into effect until the end of 2023, it requires multinationals to look back up to four years and apply the rules to assess whether they are in scope. This is made more difficult by the many uncertainties and ambiguities that remain at OECD, EU and domestic level about how the rules are intended to apply in the context of certain types of companies and transactions.