What the Autumn Budget means for international businesses

The Chancellor’s Budget last week delivered a lot of sweeping changes to our tax system with the largest tax grab in post war Britain. Although they didn’t make the headlines, there were a number of key points to note for larger corporates.

Pillar One

The new government restated the previous government’s commitment to finding an international Pillar 1 solution to the challenges of digitalisation, in particular the fair allocation of taxing rights over multinational profit. It encouraged the small number of jurisdictions that have remaining issues on the Amount B framework of the Pillar 1 solution to resolve those issues swiftly to allow the Pillar 1 agreement to be delivered.

Pillar Two

Some may remember that in October 2021, over 130 countries in the Inclusive Framework reached agreement on a two-pillar solution to reform the international tax framework in response to the increase in digitalisation.

In Autumn Statement 2022, the previous Government announced that the Multinational Top-up Tax and Domestic Top-up Tax would be introduced from accounting periods beginning on or after 31 December 2023.  Furthermore, the under-taxed profits rule from accounting periods beginning on or after 31 December 2024 would also come into force. Multinational Top-up Tax and Domestic Top-up Tax were introduced in Finance Act 2023.

Since then, a suite of amendments to these taxes has been proposed. These amendments aim to ensure that the legislation works as was originally intended and is in line with OECD commentary. 

Included in that was a change to the domestic top-up tax rules in Part 4, Finance (No.2) Act 2023 whereby a UK Qualifying Asset Holding Company (QAHC) which is not a member of a multinational group will be an “excluded entity” for the purpose of the rules. This change ensures any such QAHC will continue to pay no more tax than is proportionate to the activities it carries out.    

The Undertaxed Profits Rule

As mentioned above, Undertaxed Profits Rule (UTPR) will be effective for accounting periods beginning on or after 31 December 2024 and will be enacted in the Finance Bill 2024-2025 as part of the UK’s Multinational Top-up Tax and Domestic Top-up Tax.

This results in an element of top-up taxes that are not paid under another jurisdiction’s income inclusion rule or domestic minimum top-up tax rule into charge in the UK.

Other amendments to the legislation included the repeal of the Offshore Receipts in Respect of Intangible Property rules, which will now be covered by the UTPR.

Transfer-pricing

As part of the Government’s aims to provide “certainty that encourages investment and gives business the confidence to grow” they introduced the Corporate Tax Roadmap which focused on setting out scheduled changes to business taxation for the duration of this Parliament, including in respect of the corporation tax rate, capital allowances, R&D reliefs, the intangible assets regime, international corporation tax issues such as Transfer Pricing.

The focus of the roadmap was the commitment to the following future consultations:

• Possible reforms to the UK’s rules on transfer pricing, permanent establishments, and Diverted Profits Tax – including the potential removal of UK-to-UK transfer pricing.
• further changes to transfer pricing legislation, including potentially lowering the thresholds for exemption i.e. the Medium company exemption and introducing a requirement for multinationals to report cross-border related party transactions to HMRC.
• reviewing the transfer pricing treatment of cost contribution arrangements (contractual arrangements allowing parties to share contributions and risk in relation to the development of assets or the execution of services).

These measures are designed to allow HMRC to have better identification of transfer-pricing risk and allow for more targeted enquiries.

Finally, the government will introduce legislation in Finance Bill 2024-25 to close what they consider a technical gap in the transfer-pricing legislation.  This is to ensure that Advance Pricing Agreements (APAs) (including Advance Thin Capitalisation Agreements (ATCAs)) can be entered into, relating to financing arrangements, where those arrangements are only within the scope of the transfer pricing legislation due to persons acting together in relation to those financing arrangements. 

Budget Hub

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