Updated guidance on the implementation of Pillar Two

The Tax and Duty Manual covering the EU Minimum Taxation Directive has been updated to reflect Finance Act 2024.

The changes include the following:

• The application of rules relating to deferred tax and the approaches which a constituent entity may use to track deferred tax. These include details on an order of utilisation rule in relation to a loss deferred tax asset.
• The allocation of certain covered taxes to a constituent entity that is a hybrid entity or a reverse hybrid entity, and to allow for an election to exclude the allocation of certain deferred tax expenses and benefits to a jurisdiction.
• Updates with respect to the transitional CbCR safe harbour, including anti-avoidance provisions with respect to “hybrid arbitrage arrangements”.
• Rules to be used by eligible groups for non-material constituent entities to be applied under the “Simplified Calculations Safe Harbour”.
• Standalone investment undertakings, as defined, shall not be chargeable to the domestic top-up tax.
• The domestic top-up tax liability in respect of a securitisation entity can be imposed on another constituent entity of the multinational group or, in certain circumstances, on the securitisation entity itself.
• Clarifications on the operation of the provision relating to the calculation of domestic top-up tax.

Other amendments have been reflected throughout the manual to ensure that the Pillar Two legislation operates as intended. The appendix has been updated to reflect all relevant references.