UK: New guidance manual on Pillar Two
Guidance on multinational top-up tax and domestic top-up tax that provides clarifications on different aspects of the Pillar Two rules
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August 28, 2025
HM Revenue and Customs (HMRC) on August 5, 2025, issued a new guidance manual on the UK multinational top-up tax (MTT) and domestic top-up tax (DTT) that provides clarifications on different aspects of the Pillar Two rules in the UK, including:
- Scope provisions (e.g., excluded entities, revenue threshold test, ownership determinations, determination of entity location)
- Application of safe harbour rules (e.g., source of data, purchase price accounting adjustments, (other) adjustments required, de-minimis threshold test, simplified effective tax rate test, routine profits test, treatment of particular types of entity, anti-arbitrage rule
- Calculation of the effective tax rate (i.e., calculation of GloBE income and covered taxes including, for example, pre-filing adjustments, adjustments for intra-group financing arrangements)
- Calculation of top-up tax liability (e.g., application of the substance-based income exclusion and de-minimis exclusion)
- Treatment of particular entities and adjustments (e.g., treatment of joint ventures)
- Application of charging mechanisms (i.e., income inclusion rule (IIR), undertaxed profits rule (UTPR), and DTT) as well as clarifications on administrative requirements
Read an August 2025 report prepared by KPMG’s EU Tax Centre