For multinational businesses operating across borders, it is necessary to understand the implications of the OECD’s Pillar Two rules and the introduction of a global minimum tax rate.
This is especially important as, after months of negotiations, US-based multinationals will now be exempt from the 15 per cent tax rate and will continue to rely on domestic regimes.
If your business is part of a US-headquartered group with UK operations, then it is vital you understand the impact this will have on your obligations and how you can stay compliant.
What are the Pillar Two obligations?
Often referred to as Global Anti-Base Erosion (GLoBE) rules, Pillar Two applies to multinational groups with global revenues that exceed €750 million.
Companies are required to calculate effective tax rates in every jurisdiction in which they operate and where those tax rates fall below 15 per cent, it is sometimes necessary to apply a top-up tax.
Having now signed up to the Pillar Two agreement, multinational and domestic top-up tax rules will take effect for accounting periods starting on or after 31 December 2025.
In a break with most OECD countries, the US is set to continue to use its domestic regimes.
This includes:
For US-parented groups, it may not be possible to rely on US compliance automatically fulfilling Pillar Two obligations in the UK or other OECD countries.
What is a ‘side by side’ framework?
A ‘side by side’ framework has been proposed by the US Treasury in order to address the situation and this proposal was agreed with the OECD on 5 January 2026.
Under the framework, US groups can continue operating under domestic rules while still being recognised for certain reporting responsibilities in Pillar Two jurisdictions.
The framework reduces the number of times a multinational group will need to file GLoBE returns.
Local obligations are not eliminated by the framework, so obligations such as the UK Pillar Two returns or top-up tax may need to be paid where applicable.
What are the implications for UK entities?
UK subsidiaries of US-parented groups must carefully assess their obligations.
These may include:
Where double compliance obligations need to be managed, it can prove difficult, especially if there are timing differences that could cause records to no longer match.
How can we support you?
It can be overwhelming to approach one set of tax obligations, let alone two, but such is the cost of international business.
Our expert team can help you to understand the different tax obligations that are incurred as you operate internationally.
With the right financial advice, you can manage your international tax planning and the complexities of operating under dual systems.
For further support or guidance on your international tax planning, contact our team today.
