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June 16, 2022

UK delays implementation of OECD Pillar Two to accounting periods beginning on or after 31 December 2023

On 14 June 2022, along with other respondents to the United Kingdom’s (UK) consultation on the implementation of the Organisation for Economic Co-operation and Development (OECD) Pillar Two, EY received a letter from the UK Financial Secretary to the Treasury (FST) providing an update on the work to implement the OECD Pillar Two rules in the UK and what to expect in the coming months.

The UK consultation on how the Pillar Two rules will be implemented in domestic legislation has now closed. More than 50 responses to the consultation were received and the UK Government is now moving forward with the development of the draft legislation, which it will publish this Summer. It will continue to engage with the OECD Implementation Framework as it does so.

The letter from the UK FST notes that one of the points raised most consistently and forcefully in consultation responses was the need for a sufficient lead-in time before the rules are implemented in the UK. Respondents pointed to the complexity of the rules, the fact that there remain important policy and administrative issues being discussed within the OECD Implementation Framework, and the need for businesses to take steps and build systems to be able to ensure rule compliance.

In line with that, respondents noted that seeking to implement the rules from Spring 2023, ahead of the likely implementation date in other countries, would compromise the long-term success and sustainability of the regime and put UK businesses at a competitive and administrative disadvantage. As a result, the UK Government has advised that, alongside the next steps in the consultation, it will confirm in the Summer that the UK Pillar Two legislation will first apply to accounting periods beginning on or after 31 December 2023.

No further information was given as to the timing of the publication of the next steps and/or draft legislation (other than it will be in the summer) or the impact on the subsequent adoption dates for the domestic minimum tax (DMT) and undertaxed payment rule (UTPR) which were originally scheduled for some time after initial adoption of the income inclusion rule (IIR) provisions.


For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United Kingdom), London

Ernst & Young LLP (United States), UK Tax Desk, New York

Ernst & Young LLP (United States), FSO Tax Desk, New York

Ernst & Young LLP (United States), Transaction Tax Desk, New York

Ernst & Young LLP (United States), UK Tax Desk, Chicago


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