Undertaxed Profits Rule
- Applies
- FY2024 onwards
- Reviewed
- Rule
- P2-UTPR-2024.1
What is the Pillar Two Undertaxed Profits Rule?
The backstop: top-up tax on low-taxed entities not already charged under a Qualified IIR, collected by denying deductions in UTPR jurisdictions.
Per GloBE Model Rules (Pillar Two), December 2021, Articles 2.4 and 2.5, Application of the UTPR; UTPR Top-up Tax Amount
The Total UTPR Top-up Tax Amount for a Fiscal Year is the sum of the Top-up Tax calculated for each Low-Taxed Constituent Entity of the MNE Group, subject to adjustments. The Top-up Tax of a Low-Taxed Constituent Entity is reduced to zero if all of the Ultimate Parent Entity's Ownership Interests in it are held, directly or indirectly, by one or more Parent Entities that are required to apply a Qualified IIR in their jurisdictions for the Fiscal Year. Otherwise it is reduced by the Allocable Share of its Top-up Tax that a Parent Entity brings into charge under a Qualified IIR. Constituent Entities located in a jurisdiction with a Qualified UTPR are denied a deduction, or required to make an equivalent adjustment, so as to bear additional cash tax expense equal to the UTPR Top-up Tax Amount allocated to the jurisdiction.
It sizes the pool that utpr-allocation divides between the jurisdictions with a Qualified UTPR. The pool is what the Income Inclusion Rule did not collect.
A sum, with two reductions for the Income Inclusion Rule
2.5 — the pool
- 2.5.1 — the sum of the Top-up Tax of each Low-Taxed Constituent Entity
- 2.5.2 — an entity's Top-up Tax is reduced to zero if ALL of the Ultimate Parent Entity's interests in it are held through Parent Entities required to apply a Qualified IIR
- 2.5.3 — otherwise it is reduced by the Allocable Share brought into charge under a Qualified IIR
2.5.2 is all or nothing
"All of" the interests. A single interest held outside a Qualified IIR parent keeps the entity out of 2.5.2 and into 2.5.3, where only the amount actually brought into charge comes off. So the question is per entity, and an unanswered one is a question, not a no.
A reduction cannot take an entity below nil
If the amount brought into charge equals or exceeds an entity's Top-up Tax, that entity contributes nil to the pool. It never contributes a negative that would cancel another entity's tax.
The pool is not limited to the UPE's share
Under Article 2.5.3 the amount brought into charge under a Qualified IIR is deducted from the entity's whole Top-up Tax, not from the UPE's share of it. Income that belongs to minority shareholders therefore stays in the pool, and the Undertaxed Profits Rule can collect more than an Income Inclusion Rule at the UPE would have.
Low-taxed entities in the UPE's own jurisdiction
A UPE that applies a Qualified IIR usually applies it only to entities abroad. Top-up Tax on low-taxed entities in the UPE Jurisdiction itself is then still in the pool, unless a Qualified Domestic Minimum Top-up Tax there has reduced it to nil or the jurisdiction has extended its Income Inclusion Rule to domestic entities.
What is added
The Top-up Tax of a Joint Venture group that no parent's Qualified IIR has brought into charge is added to the pool under Article 6.4.1(c).
What is not applied
- Article 9.3 reduces the Top-up Tax to nil during an MNE Group's initial phase of international activity (a separate rule)
- Whether a jurisdiction has a Qualified UTPR in force is the reader's determination
- The adjustment itself is not applied to an Investment Entity (Article 2.4.3) — see utpr-top-up-tax-carry-forward
Order of testing
- 1
Inputs requiring your determination
Whether the group has any Low-Taxed Constituent Entity; and for each, its Top-up Tax and whether all its interests are held through Qualified IIR parents.
- 2
Low-Taxed Constituent Entities
A group with none has no pool.
- 3
Reductions for the Income Inclusion Rule
Each entity contributes its Top-up Tax, reduced to nil or by the amount brought into charge, and the pool is the sum.
Examples
Illustrative scenarios — ours, not the authority’s — each computed live by this rule. Change any fact and the outcome is the rule’s, not a hand-written answer.
Two entities, no Qualified IIR
Two low-taxed entities with Top-up Tax of EUR 5 million and EUR 3 million, neither charged by a parent.
Computed
The Total UTPR Top-up Tax Amount is EUR 8,000,000 for FY2026 as computed: the sum of the Top-up Tax of 2 Low-Taxed Constituent Entities, after the reductions Articles 2.5.2 and 2.5.3 make for what a Qualified IIR brings into charge. This is the pool; Article 2.6 divides it between the jurisdictions with a Qualified UTPR in force, and Article 9.3 reduces it to nil during an MNE Group's initial phase of international activity, which is not applied here. Based on the figures you supplied.
Workings
- A Co — contribution to the poolArticle 2.5.1 — the Top-up Tax of EUR 5,000,000, nothing having been brought into charge under a Qualified IIR
- EUR 5,000,000
- B Co — contribution to the poolArticle 2.5.1 — the Top-up Tax of EUR 3,000,000, nothing having been brought into charge under a Qualified IIR
- EUR 3,000,000
- Total UTPR Top-up Tax AmountArticle 2.5.1 — the sum of the contributions, before any Article 9.3 reduction
- EUR 8,000,000
Decided by the total utpr top-up tax amount
One wholly under a Qualified IIR
A Co's interests are all held through parents applying a Qualified IIR, so it contributes nil.
Computed
The Total UTPR Top-up Tax Amount is EUR 3,000,000 for FY2026 as computed: the sum of the Top-up Tax of 2 Low-Taxed Constituent Entities, after the reductions Articles 2.5.2 and 2.5.3 make for what a Qualified IIR brings into charge (1 entity was reduced). This is the pool; Article 2.6 divides it between the jurisdictions with a Qualified UTPR in force, and Article 9.3 reduces it to nil during an MNE Group's initial phase of international activity, which is not applied here. Based on the figures you supplied.
Workings
- A Co — contribution to the poolArticle 2.5.2 — nil: all interests are held through Qualified IIR parents (Top-up Tax EUR 5,000,000)
- EUR 0
- B Co — contribution to the poolArticle 2.5.1 — the Top-up Tax of EUR 3,000,000, nothing having been brought into charge under a Qualified IIR
- EUR 3,000,000
- Total UTPR Top-up Tax AmountArticle 2.5.1 — the sum of the contributions, before any Article 9.3 reduction
- EUR 3,000,000
Decided by the total utpr top-up tax amount
Partly charged
A parent has brought EUR 3 million of A Co's EUR 5 million into charge; the rest stays in the pool.
Computed
The Total UTPR Top-up Tax Amount is EUR 2,000,000 for FY2026 as computed: the sum of the Top-up Tax of 1 Low-Taxed Constituent Entity, after the reductions Articles 2.5.2 and 2.5.3 make for what a Qualified IIR brings into charge (1 entity was reduced). This is the pool; Article 2.6 divides it between the jurisdictions with a Qualified UTPR in force, and Article 9.3 reduces it to nil during an MNE Group's initial phase of international activity, which is not applied here. Based on the figures you supplied.
Workings
- A Co — contribution to the poolArticle 2.5.3 — the Top-up Tax of EUR 5,000,000 less EUR 3,000,000 brought into charge under a Qualified IIR, not below nil
- EUR 2,000,000
- Total UTPR Top-up Tax AmountArticle 2.5.1 — the sum of the contributions, before any Article 9.3 reduction
- EUR 2,000,000
Decided by the total utpr top-up tax amount
No low-taxed entity
The group has no Low-Taxed Constituent Entity with Top-up Tax.
Computed
There is no Total UTPR Top-up Tax Amount for FY2026 as computed: you have indicated that the MNE Group has no Low-Taxed Constituent Entity with Top-up Tax, so Article 2.5.1 has nothing to sum. Based on what you supplied.
Decided by the low-taxed constituent entities
Try it
Supply the facts and this rule computes the outcome in your browser, live. Leave a determination undecided and it blocks the result — it is never read as a no.
Not computed yet
1 input still need your determination:
- Does the MNE Group have any Low-Taxed Constituent Entity with Top-up Tax for the Fiscal Year under Article 5.2 — an entity with GloBE Income in a jurisdiction whose Effective Tax Rate is below the Minimum Rate?
Computed in your browser from the figures you supply. Nothing is sent anywhere, and the result is a computation against a rule — reference, not tax advice.
Sources
GloBE Model Rules (Pillar Two), December 2021 — Articles 2.4 and 2.5, Application of the UTPR; UTPR Top-up Tax Amount
The articles this rule encodes
https://www.oecd.org/content/dam/oecd/en/publications/reports/2021/12/tax-challenges-arising-from-digitalisation-of-the-economy-global-anti-base-erosion-model-rules-pillar-two_eed81a23/782bac33-en.pdfGloBE Model Rules (Pillar Two), December 2021 — Article 10.1, definitions of Qualified UTPR and UTPR Top-up Tax Amount
What a Qualified UTPR is and what is allocated
https://www.oecd.org/content/dam/oecd/en/publications/reports/2021/12/tax-challenges-arising-from-digitalisation-of-the-economy-global-anti-base-erosion-model-rules-pillar-two_eed81a23/782bac33-en.pdfConsolidated Commentary to the GloBE Model Rules (May 2026) — Commentary to Articles 2.4 and 2.5, paragraphs 41 to 78
The single computation shared with the IIR; the entity-by-entity test; low-taxed entities in the UPE Jurisdiction; why the pool is not limited to the UPE's share
https://www.oecd.org/content/dam/oecd/en/publications/reports/2026/05/tax-challenges-arising-from-the-digitalisation-of-the-economy-consolidated-commentary-to-the-global-anti-base-erosion-model-rules-2026_24289ddf/4377e89f-en.pdf