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Global tax compliance

For large multinational groups

Groups with worldwide turnover of over €750m have additional global tax obligations

The UK and many other countries have adopted The Organisation for Economic Co-operation (OECD) recommendations to prevent large multinational groups shifting their profits to low tax jurisdictions.

In recent years there have been a growing number of requirements placed on large businesses with turnover of over €750m to be more transparent and pay their ‘fair share’ of tax. Most of these requirements have been agreed by a group of 138 member countries of the OECD, meaning the obligations are truly global and often fall on the ultimate parent company.

Transfer pricing

Transfer pricing is the pricing of a transaction between connected parties. In the UK, transfer pricing rules are based on the ‘arms-length principle’, which determines the price as if the transaction was carried out by independent parties.

The UK’s transfer pricing rules apply to all companies or groups with more than 250 staff and either an aggregate annual turnover of over than €50 million or a balance sheet total of over €43 million.

For accounting periods beginning on or after 1 April 2023, groups operating in the UK, with worldwide turnover of over €750M, must prepare transfer pricing documentation in accordance with the OECD guidelines.

Although groups with a worldwide turnover of less than €750m are not required to keep transfer pricing documentation in accordance with the OECD guidance, they are still required to demonstrate their transfer pricing policies meet the arms-length principle. As transfer pricing is increasingly being scrutinised by tax authorities, we strongly recommend master and/or local files are prepared in any case.

We can provide advice on whether your transfer pricing documentation meets the legislative requirements and support you in updating your transfer pricing documentation in line with the OECD guidelines.

Country by country reporting (CbCR)

County by country reporting (CbCR) requires large groups of companies with turnover which exceeds €750 million to make an annual report covering each jurisdiction in which they do business. The reports are used by HMRC and other tax authorities to identify risks of groups shifting profits to low tax jurisdictions.

The report contains a vast amount of data for each territory the group has a presence in, regardless of size. Information in the report is combined by territory and includes data such as: total revenues split by related and unrelated parties, profit before tax, number of employees and assets other than cash.

In the UK, the CbCR filing deadline is 12 months after the year end. If your CbCR obligations are not met, initial penalties of £300 for late filing and £3,000 for inaccuracies in the filings will be payable.

We can support you in understanding the data points required for the CbCR. As large amounts of information are required for the report, groups who anticipate falling within the rules in the next few years should start preparing as soon as possible.

Pillar 2 – multinational top up tax

Pillar 2 rules will bring a new global minimum tax across 130 plus jurisdictions. Effectively, multinational groups in scope will need to ensure a minimum effective tax rate (currently 15%) in all the jurisdictions in which they operate through ‘top-up’ taxes.

A multinational group qualifies for multinational top-up tax if it exceeds the annual revenue threshold in at least two of the previous four accounting periods. This threshold is €750 million, prorated for accounting periods less than 12 months.

In the UK the rules have been implemented from 1 January 2024. The ultimate parent company of groups in scope with at least one company in the UK must register with HMRC within 6 months of the end of the first accounting period the rules apply. This applies to both UK headed, and non-UK headed groups.

The group may also need to file an information return, a self-assessment return and overseas notifications. Which jurisdiction these need to be filed in will depend on the specific circumstances of the group.

We can support you in understanding your Pillar II obligations, provide a transitional safe harbour review, an impact assessment and compliance support.