UK Finance Bill proposes Pillar Two side-by-side elections

The Bill received its formal first reading on 3 November and awaits second reading. It is proposed legislation: neither publication nor first reading puts the new safe harbours into force. Clause 35 would amend Parts 3 and 4 of the Finance (No. 2) Act 2023 through Schedule 7.^[1][2]

Annual side-by-side election

Schedule 7 paragraph 9 would let a multinational group’s filing member make an annual side-by-side election for an accounting period beginning on or after 1 January 2026. Where the election is available, all group members would be treated as having no top-up amount or additional top-up amount when determining any member’s UK multinational top-up tax liability. Availability depends on the ultimate parent being located in a territory included, for the relevant period, on an OECD list of qualified side-by-side regimes.^[2]

Territory status must be checked each period

OECD listing would not be the only control. The Bill would allow the Treasury by regulations, or HMRC by notice within Treasury rules, to disapply a listed territory prospectively. A later removal could not be effective for accounting periods beginning before the regulation or notice. The filing member would therefore need to confirm the territory’s status for each period rather than assume that ultimate-parent residence alone secures relief.^[2]

A separate ultimate-parent election

Paragraph 10 proposes a separate annual ultimate-parent-entity election. For a qualifying ultimate-parent territory, members located there would be treated as having no untaxed amounts under section 229B for UK UTPR purposes. That is narrower than extinguishing all Pillar Two obligations. The provisions do not state that UK domestic top-up tax is switched off, and current Part 4 continues to impose domestic top-up tax on qualifying UK entities with an effective rate below 15%.^[2][3]

Proposal only

The Bill would apply these two elections to accounting periods beginning on or after 1 January 2026. Groups within the current €750 million multinational-group threshold should map the ultimate parent, UK members, accounting-period start and OECD qualification, while retaining current calculations and filing processes until the Bill is enacted and the relevant lists and any HMRC notices are confirmed.^[2][3]