Understanding OECD Pillar Two and the UK’s Global Minimum Tax

What is Pillar Two and the global minimum tax in the UK?

Pillar Two is part of the OECD’s global tax framework designed to ensure that large multinational enterprises pay a fair share of tax wherever they operate. It sets a global minimum tax rate of 15% for groups with consolidated revenues above €750 million, applied in each jurisdiction where they generate income.

If the effective tax rate in a jurisdiction falls below that threshold, a top-up tax is charged to bring the overall rate up to the minimum. This approach is intended to discourage profit shifting into low-tax territories and create a more level international tax system.

In the UK, the rules have been implemented through the Finance (No. 2) Act 2023, which introduced both a Multinational Top-Up Tax and a Domestic Top-Up Tax. These measures took effect for accounting periods beginning on or after 31 December 2023.

Who must comply

Pillar Two applies to multinational groups with consolidated annual revenues above €750 million in at least two of the previous four accounting periods. To fall within scope, a group must also include at least one UK entity and operate in more than one jurisdiction. Groups close to the threshold should monitor their position carefully and prepare for compliance in advance if they are likely to become in scope.

Implementation and timeline

The Income Inclusion Rule is the central mechanism of Pillar Two. It ensures that if a multinational’s effective tax rate in a jurisdiction is below 15%, the parent entity pays a top-up tax to meet the minimum.

The Undertaxed Profits Rule provides an additional safeguard where the Income Inclusion Rule has not been applied elsewhere. It enables the UK and other jurisdictions to allocate and collect the top-up tax across members of the group.

In the UK, the Income Inclusion Rule and the qualifying domestic minimum top-up tax apply to periods starting on or after 31 December 2023. The Undertaxed Profits Rule will apply from periods beginning on or after 31 December 2024. Registration obligations for Pillar Two apply to accounting periods starting on or after 30 June 2025, with the first statutory returns due by 30 June 2026.

Further regulations issued in March 2025 provide clarity on Pillar Two territories, domestic top-up tax treatment and safe-harbour rules, and these apply retrospectively to accounting periods ending on or after the date of publication.

Next steps for businesses

The introduction of Pillar Two represents a significant change in global taxation, and multinational groups operating in the UK will need to prepare carefully. Understanding whether your organisation falls within scope, modelling the potential impact, and planning early for compliance and system reporting requirements will help you manage risks and stay ahead of these new obligations.

Get in touch

At Rayner Essex, our experienced tax advisers provide tailored support to help you navigate Pillar Two. We can model how the Income Inclusion Rule and Undertaxed Profits Rule may affect your group, guide you through compliance, and ensure you are ready to meet the registration and system reporting requirements.

To discuss how Pillar Two may affect your business and how best to prepare, please get in touch with our tax team. You can also explore our dedicated corporate tax services and international tax services for further tailoured advice and support.