Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what steps her Department is taking to ensure that the UK's implementation of Pillar Two (a) remains compatible with the future side‑by‑side system agreed by G7 partners and (b) avoids creating additional compliance burdens for UK businesses.

The Chancellor, alongside her G7 counterparts, has reached an understanding on a proposed path forward for the global minimum tax, Pillar 2 of the G20/OECD Inclusive Framework project on Base Erosion and Profit Shifting (BEPS).

The G7 published a statement on 28 June that set out our commitment to the core objectives of Pillar 2: tackling multinational tax avoidance and promoting a stable global tax environment that supports fair competition

This understanding also included the removal of the retaliatory tax provision (Section 899) in the US’s legislative proposals, which would have imposed a significant additional tax burden on British firms and which was causing significant concern and uncertainty.

Recent discussions informing this understanding have taken into account concerns raised by the US Treasury regarding the interaction of the Pillar 2 rules with the US minimum tax system, and have focused on developing a potential approach for the US and Pillar 2 system to sit ‘side-by-side’

The more than 140 members of the Inclusive Framework will now take forward the discussions on this potential side-by-side system, which will include ensuring that multinationals in scope of Pillar 2 and the US minimum tax systems are operating on a level playing field.

Work to develop a side-by-side system will be undertaken alongside material simplifications being delivered to the overall Pillar 2 administration and compliance framework. The government is committed to driving forward progress, for example on a permanent safe harbour to help deliver this simplification.

Where agreements are reached in the Inclusive Framework, the government will incorporate any updates into UK legislation. This is in line with the government’s commitment in the October 2024 Corporate Tax Roadmap to ensure that the UK reflects internationally agreed rules.