The world is shrinking (…and tax big brother is watching you!)
12th June 2026
Posted in Articles by Tim Shaw
For some time now, a favourite refrain of politicians and social justice campaigners has been that the largest groups of companies, “the Amazons and Googles of this world”, need to “pay their fair share” of tax, implicitly suggesting that currently they are not. It had long been assumed that clever accountants and expensive lawyers were helping “Big Corp” to design and implement complex and labyrinthine legal structures to make taxable profits “disappear” (or at least end up in low tax jurisdictions). In doing so, Big Corps were paying the “right” amount of tax which was not necessarily considered to be the same as their “fair share” of tax.
Over the last decade or so, led by a coalition of the largest economies, a series of coordinated measures have been adopted by tax authorities across the globe with the aim of shedding a spotlight on who was doing what, where, and how with a view to stopping the shifting of profits between jurisdictions (or at least taxing them regardless). One of these measures, Country by Country reporting (‘CBCr’), imposed a requirement on the very largest international groups (Revenue over €750m) to disclose their global profits earned, by jurisdiction, in one big report which the tax authorities would make available to each other. The task is onerous but one which has generally been borne by the group parent entity who added it to their ever growing list of reporting obligations.
The issue
The latest phase of global tax policing measures, known as the “Pillar 2” rules, are now coming into force, having originally been published in 2021.
The aim of the rules, building on the CBCr, is to make sure that multinational groups and corporations pay at least a baseline rate of tax in all the countries they operate in, thereby reducing the incentive for Big Corp to move profits to tax havens. The rules are enforced either by the Multinational Top-up Tax (‘MTT’) (applied in the parent jurisdiction) or the Domestic Top-up Tax (‘DTT’) (paid in the low tax subsidiary jurisdiction) which ensure an effective tax rate of at least 15% is paid on all profits.
MTT is required when the group has entities in low tax jurisdictions which are not signed up to the Pillar 2 rules, meaning more tax is paid by the parent. Big Corp parent entities will no doubt be aware of this.
DTT is applicable when the group has a subsidiary in a territory which has signed up to the rules, like the UK. This top-up is charged when the UK entities are paying lower than the 15% effective tax rate. Given that the main rate of corporation tax in the UK is 25%, the vast majority of Big Corp subsidiaries in the UK will be paying comfortably in excess of 15% and might naturally assume that no further action is required. However, they would be wrong!
A ‘simple’ example
A medium sized UK manufacturing company, Column One Ltd, had been sold to a US parented multinational corporation some years earlier. After struggling to keep up with the cost and pace of technological change their UK shareholders decided to cash in their chips and secure the business’s future by selling to a Big Corp with deeper pockets. It had then spent the last few years since the acquisition carrying on in much the same way as always, largely ignorant of such onerous global reporting requirements, and continued dutifully filing their corporation tax returns and paying their tax by instalments.
However, as part of a chance conversation with the director of a key supplier (also foreign owned) the existence of the Pillar 2 rules was flagged to them as something they needed to think about.
After a conversation with a specialist tax adviser, our simple UK manufacturer learned that in fact it has several new obligations to comply with.
Firstly, they must register for Pillar Two Top-Up Taxes if there is:
- At least one entity in the UK (themselves); and
- Consolidated group revenue of €750 million or more, in at least two of the previous four accounting periods.
The deadline for registration is no later than six months after the end of the first accounting period where the conditions above are met. For a 31 December 2024 year end, the deadline for registering was 30 June 2025 and registration is still required even if no tax will be due! Penalties apply for failing to register.
Secondly the following reporting requirements will apply;
- The group parent has to file what is known as a GloBE information return or GIR. For Column One Ltd, it is even more complicated because, where the overseas parent is in a jurisdiction that hasn’t fully signed up to Pillar 2 (and the US is one of these), then one of the subsidiaries in a jurisdiction that has signed up must do this instead – and that might be UK! If they are lucky, there may be a subsidiary in another territory, and in Column One’s case there is a large German manufacturer in the group, who could instead be allocated this task.
- Assuming another group entity has filed the GIR, that is still not the end of the story for Column One, because they would also need to file an overseas return notification (ORN) to advise HMRC that someone else has filed the GIR. The deadline for filing both a GIR and an ORN is 18 months after the end of the first accounting period within the scope of Pillar Two (and 15 months for any subsequent years).
- The UK subsidiary must also then submit a DTT return, even if the additional tax payable is nil! The deadline for filing a DTT return is exactly the same date as for the GIR and ORN (above).
The level of detailed information to be included within the above returns is dictated by a series of ‘safe harbour’ tests, requiring Column One to analyse the application of each before electing for the one that should apply. So far so bad.
Now you may be expecting (!) that HMRC has attempted to make this as painless as possible by incorporating these reporting obligations into either the normal CT600 return or via the HMRC portal; however, you would again be wrong! The taxpayer must additionally seek out an appropriate software provider to prepare and submit these additional returns.
Forbes Dawson’s view
Understanding and complying with the Pillar Two reporting obligations can be complex, time consuming, and for a small or medium sized UK company often something of a surprise. However, ignorance is no excuse meaning all UK companies, of whatever size, that are part of large multinational groups should be aware of these rules and must quickly get up to speed with the actions required to comply.
