A Practical Guide to the OECD Global Minimum Tax (Pillar Two) and Its Impact on UK Businesses (as of 2025)

I. Core Impact Areas

1. Minimum Taxation Becomes the Norm
The OECD’s Pillar Two introduces a 15% global minimum tax rate. For UK multinationals, this means profits booked in low-tax jurisdictions will be “topped up” to meet the threshold. HMRC now requires additional disclosure for all entities with consolidated revenues above €750m.

2. Compliance and Reporting Requirements
Groups must prepare GloBE (Global Anti-Base Erosion) information returns, which track effective tax rates across jurisdictions. From 2025 onwards, the UK has aligned domestic law with OECD standards, requiring UK-headquartered groups to reconcile local and group-wide effective tax rates.

II. Key Risk Scenarios

1. Transfer Pricing and Intragroup Structures
Traditional strategies of routing profits through low-tax jurisdictions risk triggering top-up tax under Pillar Two. Intragroup financing arrangements and IP structures are now under closer HMRC scrutiny.

2. Data and System Challenges
Companies face difficulties consolidating tax data across jurisdictions. ERP systems may require upgrades to capture detailed local tax adjustments and deferred tax positions, increasing compliance costs significantly.

III. Different Groups, Different Impacts

1. Multinational Corporations
UK-headquartered groups must prepare for increased compliance workloads. Failure to provide accurate GloBE reporting can result in penalties and reputational damage.

2. Mid-sized Enterprises Expanding Abroad
Even businesses below the €750m threshold may be indirectly affected, as counterparties and suppliers demand proof of compliance to safeguard their own reporting obligations.

IV. Strategic Responses

Tax Governance
Strengthen tax risk frameworks and establish centralised oversight teams to coordinate reporting across subsidiaries.

Technology & Systems
Upgrade ERP and tax reporting tools to handle granular jurisdictional adjustments. Automated workflows can reduce manual reconciliation risks.

Restructuring Options
Review cross-border structures for potential exposure to top-up tax. Where appropriate, consider relocating assets or financing arrangements to more tax-efficient but compliant jurisdictions.

V. Regulatory Outlook (2025–2027)

• 2025 Q4: HMRC expected to publish guidance on treatment of deferred tax assets under Pillar Two.

• 2026: First exchange of GloBE information across OECD members.

• 2027: Likely expansion of thresholds, with mid-sized international groups gradually brought into scope.