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March 27, 2023

UK publishes legislation for multinational top-up tax and domestic top-up tax

  • The UK has published legislation to implement the OECD GloBE Pillar Two rules in the UK. The legislation is expected to be enacted in summer 2023.

  • The legislation builds on draft legislation already published but adds a number of key developments.

Executive summary

The UK’s Finance (No.2) Bill 2023, published on 23 March 2023, includes the legislation to implement the Organisation for Economic Co-operation and Development (OECD) Global Anti-Base Erosion (GloBE) Pillar Two rules in the United Kingdom (UK).

The legislation covers the multinational top-up tax (MTUT), which includes the GloBE calculation and income inclusion rule (IIR), as well as a domestic top-up tax (DTUT), which incorporates the MTUT computation rules and is intended to be a qualifying domestic minimum top-up tax. Both the MTUT and DTUT will apply to large multinational enterprises for accounting periods beginning on or after 31 December 2023.

The legislation builds on the draft legislation that the UK published on 20 July 2022, in addition to providing some major key developments that are intended to reflect the OECD Administrative Guidance published on 2 February 2023. While we continue to work through the detail, we have summarized some of the key developments below.

Detailed discussion

Key technical developments

  • The legislation provides a mechanism to carry forward certain amounts to future periods. Businesses had raised concerns around the application of (i) Article 4.1.5 of the Model Rules, which may result in a top-up tax in a period in which a loss arises in a jurisdiction, and (ii) the possibility of a top-up tax of more than 15% arising where there are negative covered taxes in a jurisdiction. The new provision addresses these concerns.

  • Changes have been made to prevent certain credits arising from debt releases in defined corporate rescue scenarios from having an adverse impact on the GloBE calculations.

  • The legislation allows exchange gains or losses on hedging instruments to be excluded from the GloBE calculations if an election is made and certain conditions are met.

  • Temporary rules have been included to allocate taxes arising from a blended controlled foreign corporation regime (such as United States global intangible low-taxed income (US GILTI)) to members. This measure applies to accounting periods commencing on or before 31 December 2025 and ending on or before 30 June 2027.

  • Changes have been made to the transitional provisions that apply the rule in Article 9.1.3 of the Model Rules to assets transferred between two members after 30 November 2021 but before the GloBE rules apply. 

Safe harbors

An election has been included to apply a transitional safe harbor for accounting periods commencing on or before 31 December 2026 and ending on or before 30 June 2028. This is intended to reflect the Transitional Country-by-Country Reporting Safe Harbour rules set out in OECD guidance published on 20 December 2022.

Filing and reporting

A single member of the group will report the MTUT to His Majesty’s Revenue and Customs. The ultimate parent of the group will be the default member, but groups will be able to nominate an alternative member to fulfil these responsibilities. The DTUT is chargeable on qualifying entities located in the UK. 

A GloBE Information Return will be filed by the group and both MTUT and DTUT is payable and reportable on an annual basis.

Action required

The publication of the UK legislation represents a significant step toward implementation of the GloBE Pillar Two rules in the UK. This implementation is also progressing in other jurisdictions, so groups can now start to assess in more detail both the likely impact of the GloBE Pillar Two rules on their overall tax charge and the work needed to comply with their likely GloBE Pillar Two obligations.


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

Ernst & Young LLP (United Kingdom)

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

Ernst & Young Tax Co. (Japan), UK Tax Desk (Asia-Pacific), Tokyo


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