The OECD's Global Minimum Tax — formally known as Pillar Two of the Two-Pillar Solution — represents the most significant reform of international corporate taxation in decades. The initiative establishes a global minimum effective tax rate of 15% for large multinational groups. For UK companies with Indian operations, and for Indian multinationals with UK presence, understanding the Pillar Two rules and their financial implications is now an urgent boardroom-level issue.
Who Is In Scope?
Pillar Two applies to multinational enterprise (MNE) groups with annual consolidated revenue of €750 million or more in at least two of the four preceding fiscal years. This threshold captures a relatively large number of mid-market multinationals, not just the very largest groups. UK groups exceeding this threshold that have Indian subsidiaries — or Indian groups with UK operations — are within scope.
The UK implemented the Multinational Top-up Tax and the Domestic Top-up Tax from 31 December 2023. This means UK companies are already subject to Pillar Two rules for financial years beginning on or after that date. India has not yet implemented Pillar Two domestically, but Indian subsidiaries of UK groups within scope are subject to the UK rules as the parent jurisdiction. Expert UK accounting services are essential to navigate these initial top-up tax filings.
The Effective Tax Rate Calculation
Pillar Two works by calculating an effective tax rate (ETR) for each jurisdiction in which a group operates. If the ETR in any jurisdiction is below 15%, a "top-up tax" is imposed to bring the total effective rate to 15%. The ETR calculation is complex, involving adjustments to the financial accounting profits and the covered taxes in each jurisdiction to arrive at the Pillar Two taxable base.
For UK-India groups, the India ETR is a key variable. India's statutory corporate tax rate is 22% (for domestic companies opting for the new tax regime), which is above the 15% minimum. However, the Pillar Two ETR is not simply the statutory rate — it reflects the actual taxes paid relative to the adjusted accounting profits, which can differ materially from the statutory rate due to timing differences, deferred taxes, and tax incentives. Local India accounting services can meticulously reconcile these deferred tax liabilities to ensure an accurate local ETR.
Impact on Tax Planning
Pillar Two fundamentally changes the calculus of international tax planning. Structures that were previously tax-efficient because they located profits in low-tax jurisdictions are now subject to top-up taxes that eliminate the tax advantage. For UK-India groups, the practical implication is that the focus of tax planning must shift from jurisdiction selection to ensuring that business substance aligns with where profits are reported and taxes are paid.
Compliance and Reporting
Pillar Two introduces new compliance obligations, including a GloBE (Global Anti-Base Erosion) Information Return that must be filed in the parent jurisdiction and shared with other tax authorities. For UK-headed groups, this is an additional annual filing obligation that requires aggregation of financial and tax data from all jurisdictions, including India. Data collection and systems readiness are significant implementation challenges for groups that do not currently report financial data on a jurisdiction-by-jurisdiction basis.
Payline Worldwide helps UK-India business groups assess their Pillar Two exposure, model the potential top-up tax impact, and establish the data collection processes needed for GloBE reporting. Contact our international tax team for a Pillar Two readiness assessment.
