Pillar 2 model rule developments to impact multi-national group tax compliance

The Organisation for Economic Cooperation and Development’s (OECD) Pillar 2 framework has now been enacted by many jurisdictions. This change has brought into effect a domestic top up tax (DTUT) for jurisdictional tax residents that are members of a multi-national group (defined as a business having a global turnover of more than €750 million). So, what do these changes mean for budget planning?

If a client company meets the criteria set out by the OECD, they will have to calculate tax due to the jurisdictional government. This calculation is fairly complex therefore affected entities will need to carefully review the rules to ensure that they are in compliance. There is a de-minimis level of turnover and profit / loss that, if met, reduces the DTUT liability to zero. The turnover limit for the jurisdictional entity is €10 million and the profit / loss limit is €1 million. The de-minimis is detailed in section 5.5 of the OECD’s Global Anti-Base Erosion Model Rules (Pillar Two).

This impacts accounting periods starting on or after 1 January 2025, so the earliest tax returns that this would be relevant for are those for year ends from 31 December 2025. However, in some jurisdictions the 2024 tax returns are requesting preliminary info on Pillar 2 which flags, amongst other info, whether they will be in scope for 2025.

To take account of the de-minimis exemption, companies must elect each year via a minute / resolution that they meet the criteria and are applying the de-minimis.

How does this affect large groups operating cross-jurisdictionally?

It’s important to review your business set up, particularly if you are a member of a large group, as this might mean you fall into the MNE category. This will be vital to understanding whether an entity can take advantage of the de-minimis exemption from a review of financial statements. Remember that any decision taken by your firm will need to be after the 2025/26 year-end and once turnover and profit / loss levels are known.

The de-minimis clause may also differ from jurisdiction-to-jurisdiction dependant on your domestic legislation, so please review local requirements and guidance to ensure you’re meeting these thresholds.

How can Ocorian help?

Our regulatory reporting and disclosures team can help make sure your tax team is aware of these changes, and ensure any relevant filings are made, both in the UK and other jurisdictions. 

We can also provide you more insight and information on these changes, deciphering how this will affect your budgetary plans for 2026.