What is the domestic top-up tax?

The UK has committed to introduce measures which support the OECD’s two-pillar approach to ensuring that large multinational enterprises (MNEs) pay their fair share of tax, no matter which territory they operate in. Pillar One deals with the taxation of profits of MNEs by reference to the territories in which they have the most engagement, rather than those in which they have a physical presence. Pillar Two ensures that qualifying MNEs pay tax on profits at a minimum effective rate (currently set at 15%), with a multinational top-up tax being applied in instances where the effective rate falls below the minimum. See the Pillar Two ― overview of the UK’s multinational top-up tax guidance note for further details.

The introduction of a ‘qualifying domestic minimum top-up tax’ (QDMTT), in addition to the multinational top-up tax, falls within the UK’s Pillar Two obligations. A QDMTT is a top-up tax charged by a territory on the profits of entities situated within that territory, to ensure that they pay