KPMG response to the UK Pillar Two consultation

An overview of the key themes contained in KPMG in the UK’s response to the UK Pillar Two consultation.

An overview of the key themes contained in KPMG in the UK’s response to the UK Pillar Two

In January 2022 HM Treasury and HMRC launched a consultation (‘the consultation’) on the UK application and implementation of the OECD Model Rules on Pillar Two. This article summarises the key themes of KPMG in the UK’s response to the consultation which closed on 4 April 2022. Our overarching recommendation is that the UK approach to implementation should adopt flexibility, certainty and simplicity wherever possible to support UK businesses and maintain the competitiveness of the UK as an investment location. In considering UK competitiveness, HM Treasury should take into account both the tax and compliance burden placed on businesses.

For an overview of the contents of the consultation, please refer to our January Tax Matters Digest article.

Our response can be categorised into five themes, summarised below.

Implementation timetable

We have significant concerns that the Government’s stated timetable of introducing the Income Inclusion Rule (IIR) in the UK from 1 April 2023 and the Under Taxed Payments Rule (UTPR) from 1 April 2024 at the earliest, may be too rapid.

Although this timetable is broadly aligned with the OECD’s planned commencement dates, other jurisdictions are considering delaying implementation. We recommend aligning the UK implementation with that of other major economies, including the EU and the US.

We also recommend that the IIR and UTPR should apply for UK purposes to accounting periods beginning on or after the agreed respective commencement dates.

UK competitiveness

We agree a Domestic Minimum Tax (DMT) could simplify the application of the UTPR, with the additional benefit that any resulting top up tax would accrue to the UK.

Our response points out instances in which existing UK anti-avoidance legislation may need to change to ensure the UK remains competitive – for example Diverted Profits Tax and Controlled Foreign Companies rules which, in conjunction with Pillar Two, could result in double taxation.


The UK Pillar Two rules should be clear and unambiguous. Taxpayers should not need to rely on guidance to comply with the rules, albeit we identified certain specific areas where clear HMRC guidance would be beneficial.

The compliance activity needed to ensure accurate reporting and payment of tax by individual businesses poses a substantial compliance burden and we reiterate throughout our response the need for certainty in this respect.

Administration and international dispute resolution

The Model Rules are complex and novel in many respects, and their success will be dependent on efficient domestic administration and a robust international dispute resolution framework. This should be supported by treaty amendments, including for example a new multilateral instrument.

Safe harbours

A well-constructed safe harbour rule could simplify compliance greatly. However, it is not clear at present how such a rule would operate. Whilst the proposed Country-by-Country Reporting based safe harbour is likely to meet with the widest approval, we also recommend consideration of safe harbours for an agreed ‘whitelist’ of jurisdictions based on a DMT, or where the group has suffered a loss before tax.

Regardless of the ultimate safe harbour mechanism adopted, clear international agreement and robust dispute resolution mechanisms will be required to ensure such simplification is successful.

Next steps

Now that the consultation has closed, the Government will analyse the responses received and publish draft legislation for consultation in summer 2022. We will continue to monitor developments regarding the UK implementation of Pillar Two in the coming months, feeding in our views and those of our clients to HM Treasury and HMRC.