Pillar Two: Addition of an Anti-abuse Rule

Thursday 14th March 2024 Written Statements

[The Exchequer Secretary to the Treasury (Gareth Davies)]

On 15 December 2023, the UK, and over 135 members of the OECD/G20 inclusive framework on base erosion and profit shifting, agreed the third set of administrative guidance on the global anti-base erosion model rules (pillar two), which was published on 18 December.

This guidance includes a technical reform to close off certain transaction-based tax avoidance mechanisms.

These avoidance transactions are being marketed to taxpayers internationally with the aim of allowing them to exploit the transitional country-by-country reporting safe harbour, which is a temporary simplification contained in the model rules. The guidance confirms that a constituent entity cannot qualify for the transitional CBC safe harbour as a result of entering into such transactions.

In particular, section 2 of the guidance inserts paragraphs 74.1 to 74.31 into the safe harbours and penalty relief OECD guidance document—published in December 2022—to provide further guidance on the application and operation of the CBC safe harbour, and makes certain other changes, including amendments to paragraph 22 of that document.

As with any such agreement, it is for the Government to choose whether and how to legislate for these provisions.

The Government intend to apply these provisions from 14 March 2024 to prevent a loss of UK tax and will legislate in a future Finance Bill. The Government will consult with interested stakeholders on how the provisions are legislated, with a view to ensuring the legislation operates as envisaged without any unintended outcomes.

The OECD guidance on this rule was published at https://www.oecd.org/tax/beps/administrative-guidance-global-anti-base-erosion-rules-pillar-two-december-2023.pdf on pages 18 to 21.

[HCWS340]