5 Mins
Businesses operating across more than one country can face tax rules that differ significantly between jurisdictions. The aim of this guide is to give finance teams a clear, practical overview of the main International tax key concepts and the main areas that commonly affect multinational groups, without diving into legislation or specialist technical detail.
1. Which countries have the right to tax your business?
Before considering specific rules, it’s important to understand why a country may charge tax.
A country can normally tax a company when:
a) The company is resident there
UK tax residence is not only based on incorporation – a non-UK company can become UK-resident if its “central management and control” (where key strategic decisions are made) is in the UK. This can lead to unexpected UK tax liabilities and additional reporting.
b) The company has a “permanent establishment” (PE)
This is usually a fixed place of business (e.g. office, warehouse, team members) through which the company carries out activities. The country where the PE is located can tax the profits attributable to it.
Why this matters:
These rules determine where profits need to be allocated and which filings may be required.
2. Transfer Pricing – pricing between group companies
Whenever group companies buy/sell goods, services, IP or financing between themselves, the pricing must reflect what independent parties would charge (the “arm’s length” principle).
Who needs formal documentation?
Larger groups – particularly those that are part of a multinational group with turnover above €750m – must prepare formal Master File and Local File documentation explaining:
- What intra-group transactions exist
- How prices have been set
- The evidence supporting arm’s length outcomes
Smaller groups may not need full documentation, but still need to ensure internal pricing is reasonable, especially if preparing for investment, sale, or audit.
3. Controlled Foreign Companies (CFC) rules
Where a UK company owns overseas subsidiaries, the UK may tax part of the subsidiary’s profits if those profits are considered to have been shifted out of the UK artificially.
Key points:
- Not all overseas companies are caught – there are many exemptions.
- Rules mainly target low-tax jurisdictions or arrangements where profits do not match genuine commercial activity.
- Groups should review overseas structures annually to check whether the rules could apply.
4. Hybrid mismatch rules
These rules deal with situations where different countries treat the same company, entity, or financing arrangement differently – for example, one country sees a payment as deductible. At the same time, another doesn’t tax the income.
In practice, the rules prevent:
- double deductions (one expense reducing tax twice), and
- deduction with no matching taxable income anywhere in the chain.
Finance teams should be aware of this because structures involving partnerships, LLCs, or cross-border loans can inadvertently fall into these rules.
5. Withholding taxes and double tax relief
Many countries charge withholding tax (WHT) on cross-border payments such as interest, royalties, dividend or service fees.
In the UK:
- UK does not charge WHT on normal dividends.
- UK normally charges WHT (20%) on interest and some royalties, unless a tax treaty reduces the rate.
- Where overseas tax has been deducted, the UK usually gives double tax relief so that the same income isn’t taxed twice. However, one point to note is that if a dividend is exempt from tax in the UK any WHT suffered on it will not be eligible for double tax relief.
Finance teams should check:
- Whether treaty rates apply,
- Whether a clearance application is required before applying reduced WHT, and
- How foreign tax credits affect UK corporation tax.
6. Requirements for large multinational groups
Groups with global turnover over €750m face additional reporting and tax obligations.
Country-by-Country Reporting (CbCR)
CbCR applies to multinational groups with global consolidated revenue of €750m or more.
What CbCR requires
The group must submit an annual report showing, for every country in which it operates:
- revenues
- profit before tax
- corporation tax paid and accrued
- number of employees
- capital and tangible assets
CbCR reports are usually submitted to the local tax authorities in the parent company’s jurisdiction. However, this isn’t always the case, as not every country has adopted the rules. Therefore, requirements should be checked in each jurisdiction the group operates in.
Pillar Two – Global Minimum Tax Rules (15% minimum effective rate)
Pillar Two is a major global tax reform affecting very large groups (global revenues ≥ €750m). The rules aim to ensure that multinationals pay at least 15% tax in every jurisdiction where they operate.
How it works – a simplified summary
Under Pillar Two, the group must:
- Calculate the effective tax rate (ETR) for each country using standardised rules (not local tax rules).
- Compare the ETR to the minimum rate of 15%.
- If the ETR is below 15%, the group must pay a “top-up tax” to reach the minimum.
UK taxes under Pillar Two
The UK has introduced:
- Multinational Top-Up Tax (MTT) – applies when low-tax profits are earned in other countries.
- Domestic Top-Up Tax (DTT) – applies to UK profits taxed below 15% (usually rare, but reporting is still required).
What this means
Even if the UK entity doesn’t owe tax:
- it may still need to register with HMRC,
- it may need to file UK Pillar Two returns,
- and it must be able to provide group data on request.
Pillar Two is very reporting-heavy and is rapidly becoming a central part of large-group compliance.
7. Tax governance requirements
a) Corporate Criminal Offence (CCO)
Businesses must have reasonable procedures to prevent anyone associated with them facilitating tax evasion. This usually requires documented processes and periodic risk reviews.
b) For larger UK businesses:
These rules apply mainly to large UK groups but are important for finance professionals managing risk.
- Senior Accounting Officer (SAO) regime
Applies to UK groups with:
- turnover > £200m or
- balance sheet > £2bn
Such groups must appoint a named SAO responsible for ensuring tax accounting processes are appropriate, with annual certification to HMRC.
- Publication of tax strategy
Large groups (same thresholds as above, or part of a multinational group > €750m) must publish an annual statement explaining how they manage tax risk, their approach to planning, and how they work with HMRC.