UK: Draft legislation to implement Pillar Two published

Draft legislation and accompanying detailed explanatory notes to implement Pillar Two into the UK tax code

Draft legislation to implement Pillar Two published

The UK government today published draft legislation and accompanying detailed explanatory notes to implement Pillar Two into the UK tax code. This follows the UK’s decision earlier this year to defer the implementation of Pillar Two until 2024. The publications also provide some detail on the UK’s pragmatic approach to coexistence of Pillar Two with the U.S. GILTI rules.

The draft legislation is subject to technical consultation and stakeholders are invited to make comments by 14 September 2022.  


Pillar Two is part of the OECD’s BEPS 2.0 project and establishes a global minimum tax of 15% for multinational enterprises with a turnover of at least €750 million. 

The original timetable for implementation in the UK was based on the OECD mandate that the income inclusion rule (IIR) would take effect from 1 April 2023, with the undertaxed payments (or profits) rule (UTPR) and the domestic minimum tax introduced from 1 April 2024 at the earliest. However, due to concerns raised during a public consultation [PDF 542 KB] earlier this year, the UK announced on 14 June 2022, a delay to implementation (deferring the advent of Pillar Two until 2024).  

Today’s draft legislation, consultation responses

The draft legislation issued today confirms that the IIR under Pillar Two would first apply to accounting periods beginning on or after 31 December 2023. 

Published alongside the draft legislation is a summary of consultation responses [PDF 456 KB] and this document confirms that the government will introduce a UTPR, however a decision on timing for the UTPR will be made at a later date when the progress and extent of Pillar Two implementation in other jurisdictions can be assessed.

GILTI coexistence

The consultation responses note that the UK government expects that that tax paid in the United States under the current GILTI regime would be included in the adjusted covered taxes of a U.S. group’s controlled foreign corporations for the purposes of both the IIR and UTPR. It also acknowledges that this comes with some computational challenges and leaves various residual uncertainties unanswered. This approach recognizes the uncertainty for U.S.-headed groups potentially facing potential double taxation under the current model rules in the absence of reform to the GILTI regime. 

KPMG observation

Tax professionals in the UK have observed that it will be interesting to note the response to this position, both by the U.S. Congress in their consideration of reforms to the GILTI rules to accommodate the global minimum tax, but also by other countries seeking to implement the Pillar Two rules. In this respect, the UK may be seen by some as leading the way globally on an attempt to find a pragmatic way to accommodate GILTI coexistence with the Pillar Two rules.  

Domestic minimum tax

The consultation response document also confirms that the UK government is still considering the implementation of a domestic minimum tax.  Key factors in making any decision would be:

  • Implementation of IIRs and UTPRs in other countries
  • The process for determining whether a domestic minimum tax is qualified in the implementation framework
  • Whether there would be a safe harbor from the IIR or UTPR when a jurisdiction has a qualified domestic minimum tax

KPMG observation

Ongoing uncertainty continues to be an underlying theme with the government acknowledging that further multilateral work is required at the OECD Inclusive Framework in significant aspects of policy and administration, for example the operation of safe harbors.

Uncertainty also remains in detailed aspects of how the model rules would interact with existing UK legislation although the government states it has sought to make some clarifications in the legislation where the OECD model rules and commentary are unclear.  

What’s next?

While taxpayers and tax advisers are monitoring developments on implementing Pillar Two, especially in the EU and the United States, in publishing the draft legislation, the UK government has expressed its intention to legislate in Finance Bill 2022-23. This means that “substantive enactment” of the legislation in the first quarter of 2023 remains likely. 

Once substantive enactment of the legislation has occurred, the expected impact of the rules would need to be incorporated into timetables for UK financial reporting disclosures. Taxpayer groups producing financial reports under IFRS would need to consider a narrative disclosure of the status of analysis undertaken on the impact of Pillar Two during 2022.

The draft legislation continues the UK’s journey towards 2024 adoption of Pillar Two, in line with most other countries including those within the EU. Businesses need to continue to consider Pillar Two as a priority workstream to ensure that the impacts are fully assessed, managed, and communicated and that compliance and system enhancements are implemented in time.

For more information, contact a KPMG tax professional in the UK:

Kashif Javed |

Matthew Herrington |


The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.