Direction of travel – UK taxation of large and international businesses

In our most recent article, Jay Sanghrajka and Sarah Howarth explore recent work from the OECD – ‘Pillar One and Pillar Two’.

What are Pillar One and Pillar Two?

Pillar One and Pillar Two are the OECD’s response to addressing the challenges of taxation of the digital economy, and those businesses which have a small physical “footprint”.

  • Pillar one aims to allocate taxing rights over more of the system profit to the territories in which sales are made – as a simple example, the likes of Amazon should expect to pay tax on a greater portion of their profits in countries which generate significant sales.

Pillar One applies to multinational groups with an annual global turnover exceeding €20 billion and 10 percent profitability.

  •  Pillar Two seeks to ensure that overall, multinational enterprises are subject to a minimum rate of tax (being 15%) – again, as a simple example, it would no longer be acceptable for a business such as Apple to pay a very low rate of tax overall on its profits.

Pillar Two applies to groups with an annual global turnover exceeding €750 million.

As you would imagine, the rules to implement both pillars are complex, and some groups will require detailed calculations and significant advance planning.

Pillar Two will be implemented in the UK with effect for accounting periods beginning after 31 December 2023. Implementation of Pillar One is currently expected sometime in 2024. Given the substantial work that may be involved in preparing for implementation, global businesses in scope should not delay assessing the impact Pillar One and Pillar Two may have.

Mandatory master file and local file

Until now, UK domestic legislation has not dictated the format of transfer pricing documentation, requesting only that it is sufficient to support the filing position adopted in UK corporation tax returns with regard to related party transactions.

However, incoming legislation expected in Finance Bill 2023 (with effect for accounting period beginning on or after 1 April 2023) will impose on the largest taxpayers (global turnover exceeding €750 million) a requirement to prepare UK transfer pricing in the OECD prescribed “master file/local file” format.

It is also expected HMRC will introduce alongside this a Summary Audit Trail (“SAT”) questionnaire, requiring the taxpayer to document the links between work undertaken to the conclusions reached in the transfer files; This points to HMRC’s continued interest in data and process.

While many international groups will already have had to prepare transfer pricing documentation in the master file/local file format for other jurisdictions where this is already mandatory, some work may nevertheless be required to ensure the UK is compliant from 2023.

Changes to HMRC’s information powers, and penalties in relation to transfer pricing

As part of the changes being introduced in Finance Bill 2023, HMRC is also increasing their information powers, and also their scope to charge tax-geared penalties.

The changes to HMRC’s information powers are firstly intended to expedite the provision of information to HMRC in cross-border cases; HMRC already have the ability to acquire this information from group companies in other territories via treaty tax authorities, but having the power to demand this of a UK group company via their international associates will undoubtedly speed up the process.

HMRC will also be able to request transfer pricing documentation outside of an enquiry context.

If transfer pricing documentation cannot be produced or is insufficient, there is an automatic presumption of “carelessness”, with the associated repercussion from a tax-geared penalties perspective.

This provides an added incentive to ensure UK transfer pricing documentation is in order agreed of next April.

Globally mobile employees

The post covid employment landscape is increasingly demanding that employers of all sizes give their employees more flexibility over when and where they work. From a corporation tax perspective, this can raise the issue of corporate residence, depending on what the individual is doing, and where they are doing it. Consideration of corporate residence and the ensuing local compliance, and potentially also transfer pricing, obligations it may create should factor into any discussion between company and employee in agreeing a fair working arrangement. This will also almost certainly include evaluation of the personal tax position for the individual, as well as the application of local labour laws.

Evolution of Corporate Interest Restriction

Corporate Interest Restriction (“CIR”) was the UK’s domestic response to OECD BEPS Action 4, and in simple terms, aims to limit deductions for UK interest expense based on a cap calculated with reference to EBITDA. While the regime commenced with effect from 1 April 2017, more and more UK taxpayers now find themselves within it as a result of increasing base rates, and greater borrowing in light of current economic conditions.

The CIR calculations are complex and cumulative, with the legislation offering various optional elections which may or may not be beneficial. For highly leveraged companies which are currently loss-making, CIR is frequently an item of interest at the audit stage, requiring it is considered well in advance of the filing deadline for the CIR return itself (which is 12 months after the relevant accounting period end).


DAC6 is an EU mandatory disclosure regime. Its implementation in the UK was largely rescinded, with the exception of transactions reportable under Hallmark D (undermining reporting obligations and obscuring beneficial ownership).

DAC6 was however widely adopted throughout Europe. To be reportable in a European state, a transaction must be cross border (i.e. involving an EU state and another territory, and meet one of the Hallmarks.

The reporting obligation primarily falls to the “intermediary” (for example, an accountant or lawyer), and only if there is none to the taxpayer. However, if transaction is not reportable under the UK rules, a reporting obligation can still potentially fall to a UK taxpayer if they have some form of EU nexus, or are dual residents in both the UK and an EU state.


This article was written Jay Sanghrajka, and Sarah Howarth who both have numerous years of experience as international tax specialists. You can contact Jay or Sarah using their contact details below. Alternatively, you can contact a member of the tax team using the enquiry form below.

Jay Sanghrajka Tax Partner at Price Bailey

Jay Sanghrajka, Partner

Email: [email protected]

Telephone: 07841 207835

Sarah Howarth, Senior Manager

Email: [email protected]

Telephone: +44 (0)1223 941308 or 0750 085 6969

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.


For more insight, events and webinars, sign up to the Price Bailey mailing list…

Sign up

Have a question about this post? Ask our team…