Cross-border Tax Talks Podcast | UK PILLAR TWO: PAINTING WHILE THE PAINT DRIES | Matt Ryan

Doug McHoney (PwC’s International Tax Services Global Leader) is joined by Matt Ryan at PwC’s Global Tax Symposium in Rome. Matt is a London-based international tax partner and PwC UK’s Pillar Two Leader. Doug and Matt revisit the UK Pillar Two rules for the third time, but now from an enacted law perspective. While the rules are set to apply from the beginning of 2024, the United Kingdom faces an interesting challenge as one of the early adopters of Pillar Two, with enacted legislation, followed by additional OECD guidance. Doug and Matt discuss the tricky task for UK legislators of ‘painting while the paint still dries’ (i.e., enacting legislation while the OECD guidance is still changing) and some of the key differences that need to be addressed as a result of the subsequent OECD guidance, as well as still-expected guidance in 2023 and beyond. Doug and Matt discuss from a practical perspective how UK-parented taxpayers are preparing for what is ahead, including approaches to safe harbors. They then dive into complexities created by the particularities of the UK rules around the safe harbor and other key issues, like partnerships and deferred taxes. Finally, the podcast closes with practical next steps companies operating in the UK should consider ahead of 2024.

Timestamps:

2:16 - Matt provides his insights on what David Cameron’s return to the UK parliament as foreign secretary might mean for UK politics
4:40 - Doug and Matt discuss the status of the UK Pillar Two rules as of December 2023, including anticipated next steps
6:01 - Matt paints a picture of how complicated it can get in areas where the UK legislation departs from the OECD guidance and what the draftsment will need to consider in updating the already enacted UK rules to achieve the intended alignment
6:41 - Matt and Doug discuss the unique situation the UK is in because of earlier adoption of Pillar 2, which is that the paint on the UK rules isn’t even dry and the rules already need to be changed in light of subsequent updated OECD guidance, and anticipated additional OECD administrative guidance at the end of 2023 and beyond
7:08 - Matt gives us a timeline of the effective dates for specific components of Pillar Two (QDMTT, IIR and UTPR) in the UK
7:53 - Matt explains the financial accounting base for the Pillar Two calculations, and Matt and Doug discuss the upsides and challenges associated with this approach
9:27 - The OECD is supposed to issue more administrative guidance before the end of 2023, but how is that going to work from a UK procedural perspective?
10:17 - Matt explains what the definition of retroactive legislation is in the UK and what this may potentially mean for the incorporation of expected OECD Guidance into pending UK legislation (the Draft Finance Bill)
12:43 - From a practical perspective, how are UK-owned groups preparing for compliance - are they focused on the safe harbors and what are some of the challenges associated with that?
14:03 - Doug and Matt discuss technical uncertainties unique to the UK country-by-country reporting (CbCR) safe harbor rules
20:47 - Besides the safe harbors, Doug and Matt discuss a number of other challenges that have risen up from the UK enactment of Pillar Two, starting with the approach to partnerships, including those used as investment vehicles, which could have consequences for non-UK investors
23:47 - Doug and Matt discuss the issue of deferred taxes, how they relate to branches in the UK, and how they are pushed down
26: 01 - Matt highlights potential complexities created by losses for structures with branches and possible anomalies that the rules as currently drafted could create from an economic and tax perspective (if it ain’t broke, don’t fix it?)
30:47 - Wrapping up with a few other technical areas and what companies operating in the UK may expect with respect to Pillar Two as 2024 approaches