Undertaxed Profits Rule (UTPR) — Pillar 2 Backstop Mechanism

The Undertaxed Profits Rule (UTPR) is the safety net of the Pillar 2 system. It is defined in Chapter 2 of the GloBE Model Rules (Art. 2.4–2.6) and operates subsidiarily when the primary IIR is not applied or does not collect the full top-up tax — for example, because the parent entity's jurisdiction has not implemented a Pillar 2 regime. In such cases, other jurisdictions where the MNE group has constituent entities collect the outstanding top-up tax on an allocated basis.

The UTPR is not a standalone tax system but a mechanism for allocating tax claims to jurisdictions hosting the MNE group's subsidiaries or permanent establishments. The UTPR entitlement is apportioned based on the number of employees and tangible asset book values in each jurisdiction. Implementation is effected either through denial of deductions or through an equivalent charge (Art. 2.4 GloBE Model Rules).

Under EU Directive 2022/2523, the UTPR enters into force one year after the IIR (IIR from 2024, UTPR from 2025), granting jurisdictions additional implementation time.

Precursors of the UTPR were concepts such as the «secondary mechanism» in early GloBE discussions. It was designed in 2019 as a complement to the IIR. Distinct from the treaty-based Subject-to-Tax Rule (STTR), the UTPR was designed as a domestic-law backstop mechanism and refined in the GloBE Blueprint of 2020. The EU transposed the UTPR with effect from 31 December 2024 (fiscal years from 2025). In some jurisdictions UTPR introduction is delayed, as its compatibility with existing treaties and US law is disputed. In particular, the United States — citing Section 891 IRC and through statements by the US Treasury Department — has signalled its opposition to the UTPR and threatened retaliatory measures against jurisdictions applying the UTPR to US MNE groups.

The UTPR applies to MNE groups with consolidated annual revenue of at least EUR 750 million (per Art. 1.1 GloBE Model Rules) in all jurisdictions that implement Pillar 2 and where the MNE group has constituent entities. It is subsidiary: it only applies to the extent the IIR does not collect the full top-up tax. UTPR allocation follows the formula: (jurisdiction employees / total employees + jurisdiction tangible assets / total tangible assets) × ½. Where the denominator of either factor (total employees or total tangible assets) is zero, that factor is disregarded and the remaining factor is used alone. Jurisdictions that have implemented a QDMTT are shielded from UTPR collection on their own territory.

• Implement the UTPR in domestic law as a backstop to the IIR
• Calculate the UTPR share using the employee and tangible asset formula
• Collect UTPR top-up tax on low-taxed income in third jurisdictions
• Implement the UTPR adjustment through denial of deductions or through an equivalent charge
• Coordinate with IIR and QDMTT to prevent double taxation
• Apply UTPR safe harbour rules for jurisdictions with qualified regimes
• File the GloBE Information Return (GIR) also for UTPR purposes

1 correction:
- official_url is identical to IIR entry and outdated
3 updates:
- Missing reference to UTPR adjustment mechanism (denial vs. charge)
- Missing reference to US opposition and concrete measures
- Missing key_date: Political agreement October 2021
7 clarifications.
2 notes.