US tax deal to cost UK £600 million a year
Key Points
- The US side-by-side agreement cuts UK Pillar 2 revenue by £600 million a year
- Expected annual UK Pillar 2 revenue falls to £1.6 billion
- US-headquartered firms and their subsidiaries stay under US minimum tax rules
- Pillar 2 compliance costs UK businesses £13.7 million one-off and £8.2 million a year
A carve-out exempting US-headquartered companies from global minimum tax rules will cost the UK £600 million a year in lost revenue, HMRC told the Committee of Public Accounts in a report published on Friday (10 July).
The reduction cuts the expected annual UK tax take from the OECD’s Pillar 2 agreement from £2.2 billion to £1.6 billion, revenue that would otherwise contribute to funding public services.
Pillar 2 introduced a global minimum effective Corporation Tax rate of 15% for the largest multinational businesses. The UK has adopted the rules, with UK large businesses liable to pay top-up taxes to hit the minimum rate wherever they operate.
In January 2026, countries signed up to Pillar 2 negotiated a side-by-side agreement with the United States. Under the deal, US-headquartered businesses and their foreign subsidiaries remain subject to US minimum tax rules rather than Pillar 2 calculations.
HMRC said it does not expect the agreement to affect the level of tax compliance in the UK, and has no indication it will increase compliance costs for businesses.
The rules carry significant costs for the UK businesses that do fall within their scope.
HMRC forecast that complying with Pillar 2 will impose one-off costs of £13.7 million and recurring costs of £8.2 million a year across all affected businesses. Only 49% of large businesses surveyed by HMRC in 2024 viewed the overall administrative burden of tax compliance as reasonable, with 29% describing it as unreasonable.
HMRC said it has established a dedicated customer support team for Pillar 2, which has already handled almost 2,000 technical and practical queries, and that it is working with the OECD and international partners to simplify requirements where possible.
Pillar 2 forms part of international efforts to tackle profit shifting, where multinationals artificially move profits to lower-tax jurisdictions.
HMRC estimates around £21 billion of the £70.1 billion in taxes under consideration in its investigations into large businesses relates to international risks, including profit shifting. Nearly 90% of the UK’s roughly 2,000 largest business groups operate internationally.
The Committee asked HMRC to report back within 12 months on the first returns from businesses meeting their Pillar 2 reporting requirements, including filing rates and any action against businesses that fail to file.
