Published June 12, 2025Updated April 17, 202613 min read
UTPR: How the Undertaxed Profits Rule Works Under Pillar Two (2026)UTPR: How the Undertaxed Profits Rule Works Under Pillar Two (2026)
UTPR is Pillar Two’s backstop rule that allocates residual top-up tax to operating countries via a 50/50 employees-and-assets key when IIR/QDMTT don’t collect it.
Borys UlanenkoCEO of ArmsLength AI
13min read
Contents↓
Contents
TL;DR key takeaways
UTPR only bites on residual Pillar Two top-up tax not collected under a Qualified IIR (and typically after QDMTT reduces the pool).
Allocation is formulaic: 50% employees + 50% tangible assets across UTPR jurisdictions (OECD Model Rules Art. 2.6.1).
Most EU/UK calendar-year groups see UTPR from 2025 (FYs beginning on/after 31 Dec 2024); timelines vary (e.g., Japan from 1 Apr 2026).
US-headed groups can face foreign UTPR exposure unless transitional relief (e.g., UPE nominal rate ≥20%) or future political agreements are implemented.
EU Public CbCR requires large groups to publish income-tax KPIs by jurisdiction. Most calendar-year groups first report FY2025 and publish by 31 Dec 2026.
UTPR is Pillar Two’s “backstop” charging rule: it collects residual GloBE top-up tax when low-taxed profits are not fully taxed under a Qualified IIR (and after any QDMTT impact in the low-tax jurisdiction). Instead of taxing the low-tax entity directly, UTPR allocates the remaining top-up tax to UTPR-adopting jurisdictions using a 50/50 employees-and-tangible-assets formula, then raises cash tax locally via deduction denial or an equivalent adjustment (OECD Model Rules Art. 2.4–2.6). For many EU/UK calendar-year groups, UTPR is effectively a 2025 rule (FYs beginning on/after 31 Dec 2024), but implementation timing varies by country—and EU timing has an important Article 50 nuance (explained below).
Key Takeaways
→UTPR is secondary to IIR: it only applies to the extent Top-up Tax is not brought into charge under a Qualified IIR (OECD Model Rules Art. 2.5.2–2.5.3).
→Cash tax is raised in operating countries through deduction denial or an equivalent adjustment, with carry-forward if the full amount can’t be collected (Art. 2.4.2).
→Allocation is formulaic across UTPR jurisdictions: 50% employees + 50% tangible assets (Art. 2.6.1).
→US-headed groups can be exposed to foreign UTPR, subject to transitional safe harbours and evolving political agreements.
What is UTPR—and why it’s called the Pillar Two “backstop”
UTPR stands for Undertaxed Profits Rule. It is one of Pillar Two’s three core charging mechanisms alongside:
Qualified Domestic Minimum Top-up Tax (QDMTT) (domestic “first right” to collect top-up in the low-tax jurisdiction)
Income Inclusion Rule (IIR) (parent-level, top-down inclusion)
UTPR (secondary, cross-border backstop)
The “backstop” label matters because UTPR is designed to prevent a structural gap: if low-taxed income isn’t picked up by a qualified parent inclusion (IIR) and the low-tax jurisdiction doesn’t collect it via a QDMTT, UTPR lets other implementing jurisdictions collect the remaining top-up tax (OECD Model Rules Art. 2.4–2.6; OECD Consolidated Commentary 2025).
Scope reminder: when a group is even “in” Pillar Two
UTPR doesn’t create a new scope test; it applies to groups already in Pillar Two scope—generally MNE Groups with consolidated revenue ≥ EUR 750 million in at least two of the four preceding fiscal years (OECD Model Rules, Scope provisions). Domestic implementations can add practical details around how to apply the test, but UTPR planning always starts with “are we in scope?”
When does UTPR apply? (Ordering vs QDMTT and IIR)
A practical way to think about Pillar Two charging order is:
QDMTT in the low-tax jurisdiction (where enacted and qualified) reduces the amount of top-up tax left to collect elsewhere.
IIR collects remaining top-up tax at the parent (or intermediate parent) level—top-down based on ownership.
UTPR collects any residual top-up tax—sideways across operating jurisdictions—when IIR doesn’t apply or doesn’t fully collect (OECD Model Rules Art. 2.4–2.6, especially Art. 2.5.2–2.5.3 and Art. 2.6.1).
This “priority” is not just policy intent—it is hardwired in the mechanics:
QDMTT reduces the jurisdictional top-up tax computation at source, because the Jurisdictional Top-up Tax formula reduces for Domestic Top-up Tax payable under a Qualified Domestic Minimum Top-up Tax (OECD Model Rules Art. 5.2.3(d)).
UTPR’s residual pool is reduced/zeroed for amounts already brought into charge under a Qualified IIR, via the UTPR Top-up Tax Amount adjustments (OECD Model Rules Art. 2.5.2–2.5.3).
Allocation of the remaining pool to implementing countries then happens under the UTPR Percentage (OECD Model Rules Art. 2.6.1).
Warning
A common modelling mistake is assuming UTPR only applies to “undertaxed payments.” Under the GloBE Model Rules, UTPR is not a payment-by-payment rule; it is a residual top-up tax collection mechanism implemented via a local tax adjustment (Art. 2.4).
What triggers UTPR in real life?
UTPR exposure usually arises when one (or more) of these conditions holds:
The UPE jurisdiction has no Qualified IIR (or no Pillar Two at all).
There is low-taxed income in jurisdictions without a QDMTT (or with an ETR shortfall under GloBE computations).
There are ownership structures where IIR doesn’t fully reach the low-tax entity (e.g., partially-owned entities), depending on domestic implementation and group structure.
Initial phase exclusion (OECD Model Rules Art. 9.3)
A frequently-missed modelling item—especially for newer international groups—is the “initial phase of international activity” exclusion from UTPR in the Model Rules.
In simplified terms, under OECD Model Rules Art. 9.3, an MNE Group can be treated as in its initial phase if (among other conditions):
it has Constituent Entities in no more than six jurisdictions, and
tangible assets outside the “reference jurisdiction” are limited (EUR 50m test).
Where the exclusion applies, UTPR (and related reductions) can be switched off for a limited period (the Model Rules set a five-year boundary, with special timing rules for groups already in scope when UTPR comes into effect).
Note
EU readers: the EU Minimum Tax Directive contains a similar “initial phase” concept in Article 49, but the exact mechanics and start-date language can differ from the OECD Model Rules. Always confirm which rule-set you’re applying (OECD vs local implementation).
How UTPR works mechanically: deduction denial vs “equivalent adjustment”
UTPR is implemented locally by each adopting jurisdiction. The Model Rules require an outcome: constituent entities in a UTPR jurisdiction must bear an adjustment that produces additional cash tax expense equal to that jurisdiction’s allocated share of residual top-up tax (OECD Model Rules Art. 2.4.1).
Two implementation styles you’ll see in practice
Mechanism
What it looks like
What it’s trying to achieve
Deduction denial
Deny deductions (not necessarily tied to specific payments) to increase taxable base
Increase current-year cash tax to the allocated UTPR amount
Equivalent adjustment
A deemed income inclusion, surcharge, or other base-increasing rule
Same cash tax result, but not labelled as “deduction denial”
The Model Rules allow either approach as long as the jurisdiction raises the intended cash tax (OECD Model Rules Art. 2.4).
Carry-forward: when a jurisdiction can’t collect the full amount this year
If the local mechanism can’t fully impose the adjustment in the current year (e.g., insufficient deductions to deny, loss position, domestic limitations), the uncollected UTPR amount is carried forward and can be collected in later years “to the extent possible” (OECD Model Rules Art. 2.4.2).
Tip
From a controversy and provisioning standpoint, treat UTPR as a potential multi-year exposure: a “low” cash impact in year one may simply be a deferral if the jurisdiction carries forward the shortfall.
How UTPR top-up tax is allocated across countries (the UTPR percentage)
UTPR is unusual because it allocates residual top-up tax based on substance in adopting jurisdictions, not based on where the undertaxed income arises.
The formula (50% employees, 50% tangible assets)
Under OECD Model Rules Art. 2.6.1:
text
UTPR % (Jurisdiction) =
50% × (Employees in Jurisdiction ÷ Employees in all UTPR Jurisdictions)
+ 50% × (Tangible Assets in Jurisdiction ÷ Tangible Assets in all UTPR Jurisdictions)
Key consequences for practitioners:
Groups with significant headcount or tangible assets in UTPR countries can face cash tax increases locally even if those entities are already high-taxed.
The allocation base depends on which jurisdictions have implemented UTPR—your “denominator” can change year by year as adoption expands.
Data definitions matter (what counts as an employee? what’s included in tangible assets? how are PEs treated?). The OECD rules include special cases (e.g., Investment Entities exclusions) (OECD Model Rules Art. 2.6 and related provisions).
What happens if a jurisdiction didn’t actually bear last year’s UTPR? (Art. 2.6.3)
There’s an important interaction between collection capacity (carry-forward) and the future allocation denominator.
Under OECD Model Rules Art. 2.6.3, if a jurisdiction had a UTPR Top-up Tax Amount allocated to it for a prior year but that allocation did not result in a corresponding additional cash tax expense, then (broadly):
that jurisdiction’s UTPR Percentage can be deemed to be zero in a subsequent year, and
its employees and tangible assets are excluded from the Art. 2.6.1 formula until it is “caught up” (subject to the Model Rules’ conditions and exceptions).
Why it matters: you can’t model UTPR as “pure allocation” plus “separate carry-forward” and assume denominators are stable. Denominators can change precisely because a country couldn’t collect its share last year.
Note
UTPR calculations reuse the same jurisdictional ETR and top-up tax computation framework as IIR (OECD Model Rules structure; OECD Consolidated Commentary 2025). If your Pillar Two engine is wrong at the ETR layer, your UTPR allocation will still “work”—but allocate the wrong residual pool.
UTPR effective dates (2025 in many countries, but not all)
Implementation is jurisdiction-specific. Many countries followed the “IIR first, UTPR one year later” pattern.
Common effective date patterns (selected highlights)
Jurisdiction / regime
IIR timing (typical)
UTPR timing (typical)
Practitioner note
EU (Directive 2022/2523)
FYs beginning from 31 Dec 2023
FYs beginning from 31 Dec 2024 (general rule)
Calendar-year groups: UTPR often starts in 2025, but see Article 50 nuance below (EU Directive 2022/2523)
UK
Periods beginning on/after 31 Dec 2023
Periods beginning on/after 31 Dec 2024
Implemented under UK “Multinational Top-up Tax” (UK HMRC policy paper)
Australia
FYs starting on/after 1 Jan 2024
FYs starting on/after 1 Jan 2025
First returns and administration timelines follow local rules (EY Dec 2025 summary)
Japan
FYs beginning on/after 1 Apr 2024 (IIR)
1 Apr 2026 (UTPR/QDMTT)
Meaningful deferral compared with EU/UK (EY Japan alert)
Canada enacted IIR + a domestic minimum top-up tax under the GMTA; 2025 proposals did not include UTPR (EY Canada alert)
United States
Not adopted
Not adopted
Exposure is via foreign UTPR in adopting jurisdictions (US CRS IF11874 — background only)
EU nuance: when can EU UTPR start in 2024? (Directive Article 50)
The Directive’s default timing is straightforward: Member States apply the rules for fiscal years beginning from 31 December 2023, but apply the UTPR provisions a year later (fiscal years beginning from 31 December 2024)—except for a specific Article 50 arrangement (Directive (EU) 2022/2523, Article 56 and Article 50(2)).
Here’s the nuance you need for modelling:
Article 50(1) allows certain Member States (those with no more than 12 UPEs located there) to elect delayed application of both IIR and UTPR for six consecutive fiscal years beginning from 31 December 2023.
Article 50(2) then requires other Member States to apply UTPR from fiscal years beginning from 31 December 2023 to groups whose UPE is located in a deferring Member State.
Plain-English consequence: if your group’s UPE sits in an EU Member State that elected the Article 50(1) deferral, you may see UTPR in 2024 (for calendar-year taxpayers) in other EU Member States where you have constituent entities—even though the general EU UTPR start date is 2025.
Mini example (calendar-year group):
UPE in Member State X (which made an Article 50(1) election).
Subsidiaries in Member State Y (which did not defer).
Member State Y can apply UTPR for FY2024 to that group under Article 50(2).
Warning
Don’t assume “UTPR starts in 2025” even within the EU. The key timing variable isn’t an election cycle—it’s the Member State election under Article 50 of the Directive and the knock-on Article 50(2) “earlier UTPR elsewhere” rule.
Note
The table above is intentionally illustrative, not exhaustive. For ongoing country-by-country implementation status, use an implementation tracker (for the EU, the KPMG tracker listed in Sources is a practical starting point).
UTPR vs IIR: what changes in risk, data, and controversy
IIR is parent-centric; UTPR is footprint-centric
IIR: collects top-up tax at the parent based on ownership—often experienced as a parent-level cash tax cost.
UTPR: collects residual top-up tax in operating jurisdictions based on employees/assets—often experienced as an operating footprint surcharge.
That difference drives two practical implications:
Your “UTPR risk map” is your HR/asset map, not just your low-tax entity map.
Disputes can increase because multiple tax authorities can assert their allocated share using a common pool and common data, but through local assessment mechanics (OECD Consolidated Commentary 2025).
What tax teams need that they didn’t need for IIR
UTPR tends to force earlier operationalisation of non-financial data:
Employees by jurisdiction (and sometimes by entity)
Tangible assets by jurisdiction (often net book value and classification)
Tracking which jurisdictions are “UTPR jurisdictions” each year
Local entity capacity for deduction denial/equivalent adjustment (including domestic limitations)
Tip
If your Pillar Two program is currently finance-led, UTPR is where HR, fixed asset accounting, and local tax compliance teams become essential data owners.
Step-by-step UTPR workflow (how to model it like an advisor)
Below is a practitioner workflow aligned to OECD Model Rules Art. 2.4–2.6 and the standard GloBE ETR computation framework:
1) Compute jurisdictional ETR and top-up tax (the same base engine as IIR)
Compute GloBE income, covered taxes, and jurisdictional ETR.
Identify low-tax jurisdictions and compute top-up tax amounts.
2) Determine the residual pool: the Total UTPR Top-up Tax Amount
Start with top-up taxes of low-taxed constituent entities (Top-up Tax is determined under the Art. 5.2 framework).
Ensure the computation reflects QDMTT impact where qualified (because the Jurisdictional Top-up Tax is reduced for Domestic Top-up Tax payable under a Qualified DMTT in Art. 5.2.3(d)).
Reduce/zero amounts already brought into charge under a Qualified IIR (OECD Model Rules Art. 2.5.2–2.5.3).
3) Identify UTPR jurisdictions for the year
Include only jurisdictions with a Qualified UTPR in force for the fiscal year (OECD Model Rules definition concept).
4) Build the allocation key and compute UTPR percentage per jurisdiction
Employees and tangible assets in each UTPR jurisdiction
Compute the 50/50 formula (OECD Model Rules Art. 2.6.1)
Consider whether any jurisdictions are locked out of the denominator under Art. 2.6.3 (deemed UTPR Percentage of zero).
5) Allocate the residual pool
Multiply Total UTPR Top-up Tax Amount by each jurisdiction’s UTPR percentage (OECD Model Rules Art. 2.6)
6) Convert allocated UTPR amount into local cash tax via domestic mechanics
Apply deduction denial/equivalent adjustment to local entities
Track any uncollected amount for carry-forward (OECD Model Rules Art. 2.4.2)
Decision Criteria
01You likely have UTPR exposure if you are in scope (≥ EUR 750m revenue) AND your UPE jurisdiction lacks a Qualified IIR (or doesn’t apply it to the relevant low-tax income).
02UTPR cash tax will concentrate in countries where you have relatively more employees/assets among UTPR adopters—regardless of where the undertaxed income arises.
03If a low-tax jurisdiction implements a Qualified QDMTT, your UTPR pool usually shrinks (sometimes dramatically), reducing cross-border UTPR.
04If local entities have limited taxable capacity (losses, limitation rules), expect UTPR carry-forward and potential Art. 2.6.3 denominator effects in later years.
Practical Examples (with numbers and calculations)
The examples below are simplified to highlight mechanics. They ignore SBIE nuances, deferred tax complexity, and local-law idiosyncrasies; use them as modelling templates, not filing positions.
Example 1: Residual top-up tax allocated to UTPR jurisdictions (employees/assets key)
No Qualified IIR applies at the parent level (so the EUR 10m remains in the UTPR pool, subject to the Model Rules’ Art. 2.5 adjustments).
Two UTPR jurisdictions (A and B) with the following substance:
Jurisdiction
Employees
Tangible assets (NBV)
A
1,000
200m
B
500
300m
Step 1 — Total UTPR Top-up Tax Amount
Residual pool = EUR 10m (OECD Model Rules Art. 2.5.1–2.5.3)
Step 2 — UTPR percentages (OECD Model Rules Art. 2.6.1)
Employees shares:
A: 1,000 / 1,500 = 66.67%
B: 500 / 1,500 = 33.33%
Assets shares:
A: 200 / 500 = 40%
B: 300 / 500 = 60%
UTPR % per jurisdiction:
text
A = 50%×66.67% + 50%×40% = 53.33%
B = 50%×33.33% + 50%×60% = 46.67%
Step 3 — Allocate the EUR 10m pool
A: 53.33% × 10m = EUR 5.333m
B: 46.67% × 10m = EUR 4.667m
Step 4 — Translate allocated UTPR into local cash tax
Assume A raises UTPR via deduction denial and has a 25% corporate tax rate.
To collect EUR 5.333m of cash tax, A needs a taxable base increase of:
text
Required base increase = 5.333m ÷ 25% = EUR 21.332m
That base increase is created by denying deductions or an equivalent adjustment (OECD Model Rules Art. 2.4.1).
Key point
This example shows why UTPR is “footprint-driven”: Jurisdiction A collects more than half the residual top-up tax even though the undertaxed profits are in Jurisdiction L.
Example 2: UTPR carry-forward when current-year adjustments are insufficient
Facts
UTPR Jurisdiction C is allocated EUR 3.0m of UTPR top-up tax for FY2025.
Statutory corporate tax rate in C: 30%
Due to local limitations, the entity can only sustain EUR 5m of base increase this year (e.g., only that amount of deductions can be denied without creating a loss or breaching limitation rules).
Step 1 — Calculate the base increase needed to collect EUR 3.0m
Maximum base increase available this year = EUR 5m
Cash tax raised this year = 30% × 5m = EUR 1.5m
Step 3 — Compute the shortfall and carry-forward
Shortfall = 3.0m − 1.5m = EUR 1.5m
The EUR 1.5m can be carried forward and collected in later years “to the extent possible” (OECD Model Rules Art. 2.4.2).
Warning
If you provision UTPR purely as “current-year cash,” you can understate exposure. The Model Rules explicitly contemplate multi-year collection via carry-forward when the domestic mechanism can’t fully apply in year one.
Transitional relief and safe harbours (what matters for UTPR in 2025)
The OECD’s July 2023 Administrative Guidance introduced a Transitional UTPR Safe Harbour that is particularly relevant for groups headquartered in jurisdictions that have not adopted Pillar Two (notably the US as of Dec 2025).
What it does (narrowly): it can deem the UTPR Top-up Tax Amount calculated for the UPE jurisdiction to be zero for qualifying years—this is not a blanket “no UTPR anywhere” rule (OECD Administrative Guidance, July 2023, §5.2).
When it applies (the Transition Period):
Only for Fiscal Years that run no longer than 12 months,
that begin on or before 31 Dec 2025, and
end before 31 Dec 2026 (OECD Administrative Guidance, July 2023, §5.2(2)).
A key condition: the UPE jurisdiction must have a corporate income tax that applies at a rate of at least 20% (OECD Administrative Guidance, July 2023, §5.2(1)).
Tip
In UTPR modelling for US-headed groups, build a “safe harbour toggle” by year and be explicit about what it covers: it can eliminate UTPR on UPE-jurisdiction top-up tax during the Transition Period, but it doesn’t automatically eliminate UTPR driven by low-tax outcomes in other jurisdictions.
Interaction with CbCR safe harbour choices
Groups may also be using CbCR transitional safe harbours. In some cases, elections and “once out, always out” dynamics can affect future eligibility (OECD Administrative Guidance, July 2023). If you’re still building your CbCR-based approach, see our CbCR Preparation Guide and the Pillar Two CbCR Hub.
US-headed groups: why UTPR is the practical flashpoint
The baseline: no US Pillar Two adoption (as of Dec 2025)
The US has not adopted Pillar Two IIR/UTPR/QDMTT. That does not eliminate exposure—because foreign jurisdictions that have implemented UTPR can apply it to a group’s footprint in their countries.
In other words: US-headed groups can face cash tax increases in the EU/UK/Australia (and other adopters) purely because undertaxed outcomes exist somewhere in the group and are not picked up under a Qualified IIR.
Note
We treat US CRS one-pagers (like IF11874) as background for policy context. For technical UTPR mechanics and modelling positions, rely on the OECD Model Rules/Commentary/Administrative Guidance and enacted local law.
The political overlay: the G7 “side-by-side” concept (June 2025)
A G7 statement (28 June 2025) describes a “side-by-side” approach under which US-parented groups would be fully excluded from IIR and UTPR (domestic and foreign profits), with further work to be pursued (US Treasury release, 28 June 2025).
From a practitioner perspective, treat this as directional rather than dispositive until it is implemented through agreed rules and domestic legislation.
Warning
Don’t bake political statements into filing positions. Model them as scenarios (base case vs exclusion case) and document assumptions, because UTPR assessments will be driven by enacted local law.
Implementation checklist: what to prepare before your first UTPR year
Below is a practical “UTPR readiness pack” that aligns well with Pillar Two documentation expectations and auditability.
Data you should lock down
Employees by jurisdiction and entity (and a policy for who counts, averaging methodology, contractors, secondments)
Tangible assets by jurisdiction and entity (NBV definitions, leased assets treatment, timing conventions)
A year-by-year list of UTPR jurisdictions applicable to your group
Mapping of local entities that may bear deduction denials/equivalent adjustments
Process controls and documentation
A single source-of-truth computation for the Total UTPR Top-up Tax Amount (tie-out to IIR/QDMTT computations)
An “allocation key file” with:
Inputs (employees/assets)
Denominators (UTPR jurisdictions included, and any Art. 2.6.3 exclusions)
Reconciliation to HR and fixed asset systems
A local-law memo per major UTPR jurisdiction explaining:
Mechanism used (deduction denial vs equivalent adjustment)
Limits, carry-forward behaviour, and potential Art. 2.6.3 effects
Tip
If you’re already upgrading transfer pricing documentation processes, align your Pillar Two/UTPR data owners and controls with your existing documentation governance. Our Documentation Hub is a good starting point for structuring responsibilities and evidence trails.
Common Pitfalls to Avoid
01Treating UTPR as a payment-based rule and missing exposure that arises from the residual top-up tax pool (OECD Model Rules Art. 2.4–2.5).
02Building the employees/assets key from inconsistent systems (HR vs payroll vs statutory accounts) without a documented definition and reconciliation.
03Assuming UTPR cash tax equals current-year cash—ignoring carry-forward where the domestic mechanism can’t fully apply (Art. 2.4.2).
04Failing to track which jurisdictions are UTPR adopters each year (and any Art. 2.6.3 exclusions), causing denominator errors in the UTPR percentage (Art. 2.6.1–2.6.3).
05Overlooking the interaction between QDMTT adoption and the residual pool—leading to overstated or misallocated UTPR (Art. 5.2.3(d)).
06Missing the initial phase exclusion, which can materially reduce early-year UTPR exposure for certain groups (Art. 9.3).
UTPR is a secondary GloBE charging rule that collects residual top-up tax not collected under a Qualified IIR (and typically after QDMTT reduces the amount), by imposing tax adjustments in UTPR-adopting jurisdictions (OECD Model Rules Art. 2.4–2.6).
2) Why is UTPR called a “backstop” mechanism?
Because it is designed to ensure the 15% minimum tax is still collected when the primary parent-level mechanism (IIR) does not apply or does not fully collect the top-up tax (OECD Consolidated Commentary 2025; OECD Model Rules Art. 2.5–2.6).
3) When does UTPR apply compared with IIR?
UTPR applies only to the extent top-up tax is not brought into charge under a Qualified IIR; under the Model Rules the UTPR pool is reduced/zeroed for amounts brought into charge under a Qualified IIR (OECD Model Rules Art. 2.5.2–2.5.3).
4) How is UTPR collected in practice—deduction denial or something else?
A UTPR jurisdiction must raise the allocated amount of cash tax through denial of deductions or an equivalent adjustment (such as a deemed income inclusion or surcharge), as long as the cash tax outcome matches the allocated UTPR amount (OECD Model Rules Art. 2.4.1).
5) How is UTPR top-up tax allocated between countries?
Allocation is formulaic across UTPR jurisdictions based 50/50 on employees and tangible assets (net book value), per OECD Model Rules Art. 2.6.1.
6) What is the UTPR effective date in 2025?
In many regimes (including the EU and UK), UTPR generally applies for fiscal years beginning on/after 31 Dec 2024, which means calendar-year taxpayers first apply UTPR in 2025 (EU Directive 2022/2523; UK HMRC UTPR paper). However, in the EU, Directive Article 50(2) can cause earlier UTPR (2024 for calendar-year groups) for certain groups whose UPE is in a deferring Member State.
7) How is UTPR different from IIR?
IIR collects top-up tax at the parent level based on ownership (top-down). UTPR collects residual top-up tax by allocating it to operating countries based on employees and tangible assets (sideways), often shifting cash tax impacts to high-substance jurisdictions (OECD Model Rules Art. 2.4–2.6).
8) Can UTPR apply even if the undertaxed income is outside the UTPR country?
Yes. UTPR allocates residual top-up tax based on employees and tangible assets in UTPR jurisdictions, so a country can collect UTPR even if the undertaxed profits arose elsewhere in the group (OECD Model Rules Art. 2.6.1).
9) What is the Transitional UTPR Safe Harbour?
It’s an OECD transitional rule (July 2023 Administrative Guidance) that can deem the UTPR Top-up Tax Amount calculated for the UPE jurisdiction to be zero for Fiscal Years in the Transition Period (Fiscal Years no longer than 12 months that begin on/before 31 Dec 2025 and end before 31 Dec 2026), if the UPE jurisdiction has a corporate income tax with a rate of at least 20% (OECD Administrative Guidance, July 2023, §5.2).
10) Does UTPR affect US multinationals?
Potentially yes. Even without US adoption of Pillar Two, US-headed groups can be exposed to foreign UTPR in jurisdictions that have implemented it, subject to transitional safe harbours and evolving political agreements (OECD Administrative Guidance July 2023; US Treasury G7 statement 28 June 2025; US CRS IF11874 for background context).
Borys UlanenkoCEO of ArmsLength AI
