UK Finance Bill proposes domestic override for OECD Pillar Two safe-harbour lists

Two proposed annual elections

Schedule 7 Part 3 would amend the multinational top-up tax rules in the Finance (No. 2) Act 2023 by inserting a new Part 5 into Schedule 16A. Proposed paragraph 50 would allow a group's filing member to make an annual election where the ultimate parent entity is located in a territory on the OECD's qualified side-by-side list. For that accounting period, all members of the group would be treated as having no top-up or additional top-up amounts for multinational top-up tax purposes.^[2][3]

A separate annual ultimate-parent-entity safe-harbour election under proposed paragraph 52 would apply to group members located in a qualifying UPE territory. Those members would be treated as having no untaxed amounts under section 229B. Both elections are drafted to apply only for accounting periods beginning on or after 1 January 2026, and both would be made under the existing annual-election machinery in Schedule 15 paragraph 2.^[2]

UK could disapply OECD qualification prospectively

Qualification would normally follow the relevant OECD list. However, proposed paragraphs 51 and 53 would let the Treasury make regulations, or HMRC publish a notice where authorised by regulations, providing that an OECD-listed territory is not treated as qualified for UK purposes. The Bill protects completed periods: an exclusion could apply only to accounting periods beginning after the regulations or notice is made or published. No such regulations or HMRC notice were identified in the material reviewed, so the Bill does not itself establish that any territory has been removed.^[2]

What multinational groups should do

HMRC says the broader measure affects multinational groups with annual revenue above EUR750 million and UK business activity. If enacted in its introduced form, groups considering either safe harbour would need to verify the OECD status of the UPE territory, check whether the UK has issued a prospective exclusion and preserve the filing member's annual election. The provisions could therefore create a UK-specific qualification check even where the OECD has listed a territory. The Bill has completed only first reading, so groups should track parliamentary amendments and enactment before treating the relief as operative.^[1][2][3]