Pillar Two
In October 2021, over 130 countries in the Inclusive Framework reached agreement on a two-pillar solution to reform the international tax framework in response to the challenges of digitalisation.
In Autumn Statement 2022, it was announced that the Multinational Top-up Tax and Domestic Top-up Tax would be introduced from accounting periods beginning on or after 31 December 2023 and the undertaxed profits rule from accounting periods beginning on or after 31 December 2024. Multinational Top-up Tax and Domestic Top-up Tax were introduced in Finance Act 2023.
A package of amendments to these taxes has been proposed. These amendments simply aim to ensure that the legislation works as was originally intended and is in line with OECD commentary. Of particular note the domestic top-up tax rules in Part 4, Finance (No.2) Act 2023 are being amended so that a UK Qualifying Asset Holding Company (QAHC) which is not a member of a multinational group will be an "excluded entity" for the purpose of the rules. This change ensures any such QAHC will continue to pay no more tax than is proportionate to the activities it performs.
The Undertaxed Profits Rule
Effective for accounting periods beginning on or after 31 December 2024, the government has confirmed that the Undertaxed Profits Rule (UTPR) will finally be implemented in the Finance Bill 2024-2025 as part of the UK's Multinational Top-up Tax and Domestic Top-up Tax. This measure brings a share of top-up taxes that are not paid under another jurisdiction's income inclusion rule or domestic minimum top-up tax rule into charge in the UK. The measure also serves to keep UK legislation consistent with the model rules, commentary and administrative guidance that have been agreed by the OECD/G20 Inclusive Framework
Several technical amendments will be made to the Multinational and Domestic Top-up Tax legislation (Part 3 and Part 4 of Finance (No.2) Act 2023) to accommodate this, including the repeal of the Offshore Receipts in Respect of Intangible Property rules, which will now be covered by the UTPR.
Common Reporting Standard (CRS)
Cryptoasset reporting framework
The government has concluded a consultation on the implementation of the OECD's reporting framework for cryptoassets (CARF) and published draft implementing regulations.
The CARF will require cryptoasset service providers in the UK to report details of their users, in the same way that the existing Common Reporting Standard (CRS) requires financial institutions in the UK to report information on their overseas account holders.
Feedback from stakeholders includes a need for greater clarity on some of the key concepts and terms which determine the scope of the CARF, such as the definition of a "cryptoasset service provider". This is defined in the draft regulations, via the OECD CARF Framework, as a business which effects exchange transactions of "cryptoassets" (digital representations of value that rely on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions).
The Government has stated its intention to address these concerns in its guidance. The CARF is intended to apply from January 2026.
Amendments to the Common reporting standard
The same consultation addressed proposed amendments to the UK's existing implementation of the CRS itself, with the Government has publishing draft regulations in relation to these amendments too.
These amendments include a mandatory registration requirement for financial institutions, the designation of certain qualifying non-profit organisations as non-reporting (and therefore out of scope of the rules), and revised penalties for non-compliance.
Domestic reporting on UK account holders
Both consultations – on the CARF and on the amendments to the CRS – included questions on whether they should include a domestic reporting regime (i.e., a requirement for relevant reporting institutions to report details of UK account holders as well as overseas account holders).
The government has decided to include this requirement in its implementation of the CAF but not, at this stage, in its implementation of the CRS.
Transfer-Pricing
In a document entitled the corporate tax roadmap the government has committed to the following future consultations:
- potential reforms to the UK's rules on transfer pricing,
permanent establishments, and Diverted Profits Tax –
including the potential removal of UK-to-UK transfer pricing (which
will remove the UK compliance bill).
- further changes to transfer pricing legislation, including
potentially lowering the thresholds for exemption and introducing a
requirement for multinationals to report cross-border related party
transactions to HMRC (in order to have better identification of
transfer-pricing risk and allow for more targeted enquiries).
- reviewing the transfer pricing treatment of cost contribution arrangements (contractual arrangements allowing parties to share contributions and risk in relation to the development of assets or the execution of services).
In addition, the government will introduce legislation in Finance Bill 2024-25 to plug a technical gap in the transfer-pricing legislation to ensure that, in line with current published practice, Advance Pricing Agreements (APAs) (including Advance Thin Capitalisation Agreements (ATCAs)) can be entered into relating to financing arrangements where those arrangements are only within the scope of the transfer pricing legislation due to persons acting together in relation to those financing arrangements.
Pillar One
The government restated the UK's commitment to finding an international Pillar 1 solution to the challenges that digitalisation has created for the fair allocation of taxing rights over multinational profit. It urged the small number of jurisdictions that have remaining issues on the Amount B framework of the Pillar 1 solution to urgently resolve those issues to allow the Pillar 1 agreement to be delivered.
Overseas Pensions and Scheme Administrators
The Overseas Transfer Charge (OTC) is a 25% tax charge on transfers to Qualifying Recognised Overseas Pension Schemes (QROPS). To prevent UK residents benefiting from a double tax-free allowance whilst remaining in the UK, the government has announced the removal of the exclusion for transfers to QROPS established in the European Economic Area (EEA) or Gibraltar from the OTC. The exclusion will no longer apply to transfers to QROPS established in the EEA and Gibraltar made on or after 30 October 2024.
The Government also announced that from 6 April 2025, the conditions of Overseas Pension Schemes (OPS) and Recognised Overseas Pension Schemes (ROPS) established in the EEA will be brought in line with OPS and ROPS established in the rest of the world so that, from 6 April 2026, scheme administrators of registered pension schemes must be UK resident.
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