Policy paper

The Multinational Top-up Tax (Pillar 2 territories, qualifying domestic top-up taxes and accredited qualifying domestic top-up taxes) Regulations — 2025

Published 1 April 2025

Who is likely to be affected

Groups with annual global revenues exceeding 750 million euros that have business activities in the UK.

General description of the measure

Multinational Top-up Tax (MTT) is part of the UK’s implementation of the ‘Pillar 2’ Global Minimum Tax. MTT may be chargeable where a group’s profits arising in a jurisdiction are taxed below the minimum effective rate of 15%.

The charge is a top-up tax — the amount brought into charge is that required to achieve a 15% minimum effective rate. No additional tax will arise in respect of jurisdictions where the group’s profits are taxed at 15% or more.

This is in accordance with the agreement to reform the international tax framework made by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) on 8 October 2021.

To ensure the intended distribution of taxing rights between jurisdictions and prevent double taxation, MTT recognises taxes paid under other jurisdiction’s ‘qualifying’ income inclusion rules and domestic top-up taxes. Such rules and taxes are qualifying if they are consistent with the Organisation for Economic Cooperation and Development (OECD) model rules and commentary.

Under the MTT rules, regulations setting out lists of territories with qualifying income inclusion rules and of qualifying domestic top-up taxes will provide certainty. Henceforth only territories and taxes named in the regulations or by HMRC notice will be recognised as qualifying for MTT purposes.

This instrument will provide:

• a list of each territory that is a ‘Pillar 2 territory’ under section 241 Finance (No.2) Act 2023, reflecting its implementation of a qualifying income inclusion rule,
• a list of each tax that is a qualifying domestic top-up tax under section 256 Finance (No.2) Act 2023 (and the respective territories of those taxes),
• a list of each tax specified as being accredited for the qualifying domestic top-up tax safe harbour in Schedule 16A to Finance (No.2) Act 2023 (and the respective territories of those taxes), and
• for HMRC to have the power to specify additions to each list by notice.

Policy objective

This instrument provides certainty to business by introducing a list of territories that have implemented a qualifying income inclusion rule, a list of taxes that are qualifying domestic top-up taxes (and the respective territories of those taxes), and a list of taxes that are specified as being accredited for the qualifying domestic top-up tax safe harbour (and the respective territories of those taxes).

It will also provide HMRC the power to specify additions to these lists by notice. This will increase certainty for businesses when other territories implement qualifying rules by enabling the recognition of those territories and rules more rapidly for the purposes of UK law.

This instrument is part of the wider implementation of the Pillar 2 rules and will provide certainty in the apportionment of tax rights between implementing territories. As a result, it will contribute to the policy objectives of the wider implementation of the Pillar 2 rules discussed in the tax information and impact note titled Multinational top-up tax and Domestic top-up tax: UK adoption of OECD Pillar 2, published 15 March 2023.

Background to the measure

In October 2021, over 130 countries in the OECD Inclusive Framework reached agreement on a 2-pillar solution to reform the international tax framework in response to the challenges of digitalisation. Pillar 2 is the second part of the 2-pillar solution.

The agreement was followed by a consultation on the UK implementation of Pillar 2 which closed in April 2022.

The UK implemented Pillar 2 in the Finance (No.2) Act 2023. Likewise, other countries in the OECD Inclusive Framework have implemented the rules.

This instrument provides a list of territories that have implemented a qualifying income inclusion rule, a list of taxes which are qualifying domestic top-up taxes (and the respective territories of those taxes) and a list of taxes that are specified as being accredited for the qualifying domestic top-up tax safe harbour (and the respective territories of those taxes).

It will also provide HMRC the power to specify, by notice, additions to the taxes and territories which are deemed to be qualifying or accredited.

Detailed proposal

Operative date

This instrument will be laid before the House of Commons on 20 March 2025 and will have effect from that date.

The parts of this instrument that provide a list of territories that have implemented a qualifying income inclusion rule, a list of taxes that are qualifying domestic top-up taxes (and the respective territories of those taxes), and a list of taxes that are accredited for the qualifying domestic top-up tax safe harbour (and the respective territories of those taxes) are retrospective, in that they apply to accounting periods of groups that have already commenced.

The regulations will provide a definitive statement of Pillar 2 territories, qualifying domestic top-up taxes and accredited qualifying domestic top-up taxes applicable to groups whose accounting periods conclude on or after the date these regulations are laid. The position for accounting periods concluding before the date the regulations are laid will be governed by section 241(4), section 256(5), and paragraph 2(2) schedule 16A Finance (No.2) Act 2023.

Current law

Part 3 and 4 Finance (No.2) Act 2023 implemented Pillar 2 in the UK.

Proposed revisions

This instrument constitutes the regulations provided for in section 241, section 256 and paragraph 2 schedule 16A Finance (No.2) Act 2023. This provides a list of ‘Pillar 2 territories’ that have implemented a qualifying income inclusion rule, a list of taxes which are qualifying domestic top-up taxes (and the respective territories of those taxes), and a list of taxes that are specified as being accredited for the qualifying domestic top-up tax safe harbour (and the respective territories of those taxes).

These lists will be required by groups when calculating any top-up tax amounts under the MTT rules in Part 3 Finance (No.2) Act 2023.

It also implements the regulations provided for in sections 241, 256 and paragraph 2 schedule 16A Finance (No.2) Act 2023 to provide HMRC the power to specify by notice additions to the taxes and territories which are recognised as qualifying or accredited.

Summary of impacts

Exchequer impact (£ million)

2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030
nil	nil	nil	nil	nil	nil

This measure is not expected to have an Exchequer impact.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

There is expected to be no impact on individuals as this measure only affects businesses. The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It is not expected that there will be adverse effects on any group sharing protected characteristics.

Impact on business including civil society organisations

The impact on business of the implementation of the wider Pillar 2 rules has been set out in the tax information and impact note titled Multinational top-up tax and Domestic top-up tax: UK adoption of OECD Pillar 2, published 15 March 2023, and in subsequent tax information and impact notes concerning these taxes.

This measure ensures that MTT correctly takes account of comparable top-up taxes and domestic top-up taxes levied by other jurisdictions (as well as providing additional simplification for ‘accredited’ taxes). It is expected to have a negligible impact on businesses affected by the Pillar 2 rules. While the laying of this statutory instrument is not expected to affect the overall assessment of the impacts on businesses as set out in previous tax information and impact notes, one-off costs for businesses could include the need to familiarise themselves with the lists of Pillar 2 territories, qualifying domestic top-up taxes and accredited safe harbours. Ongoing costs could include keeping updated with these lists, which may change from time to time.

This measure is expected to have no overall impact on business’ experience of dealing with HMRC as the measure provides a of the list of Pillar 2 territories, qualifying domestic top-up taxes and accredited safe harbours which is required as part of the wider Pillar 2 calculations.

This measure is not expected to impact civil society organisations.

Operational impact (£ million) (HMRC or other)

This statutory instrument is not expected to have any operational impact.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be monitored in line with the OECD peer review process for Pillar 2 qualifying status.

Further advice

If you have any questions about this change, please contact the Pillar 2 team by email: pillar2.consulation@hmrc.gov.uk

Declaration

Mr James Murray MP, Exchequer Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.