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UTPR Top-up Tax carry-forward

Applies
FY2024 onwards
Reviewed
Rule
P2-UTPRCF-2024.1
By

What happens if a UTPR adjustment is not enough in a year?

The shortfall in extra cash tax carries forward to later years until the full UTPR amount allocated to the jurisdiction is collected.

Per GloBE Model Rules (Pillar Two), December 2021, Article 2.4, Application of the UTPR

Constituent Entities located in a jurisdiction with a Qualified UTPR are denied a deduction, or required to make an equivalent adjustment, in an amount resulting in additional cash tax expense equal to the UTPR Top-up Tax Amount allocated to the jurisdiction for the Fiscal Year. The adjustment applies, to the extent possible, to the taxable year in which the Fiscal Year ends. If it is insufficient to produce additional cash tax expense for that taxable year equal to the amount allocated, the difference is carried forward to the extent necessary to the succeeding Fiscal Years and adjusted again to the extent possible for each taxable year. The adjustment does not apply to a Constituent Entity that is an Investment Entity.

It tracks what a jurisdiction has still to collect. A shortfall also sets the jurisdiction's UTPR Percentage to zero in later years until it is realised (see utpr-allocation).

A running balance of tax still to be collected

2.4.1 and 2.4.2 — the mechanism

  • The adjustment is a denied deduction, or an equivalent adjustment under domestic law
  • It is made, to the extent possible, for the taxable year in which the Fiscal Year ends
  • Any difference is carried forward to the succeeding Fiscal Years and adjusted again, to the extent possible, each year

How much deduction has to be denied

The amount allocated divided by the entity's tax rate. An allocation of 10 in a jurisdiction taxing at 25% needs a deduction of 40 to be denied. The expense need not be a payment to another group entity: depreciation, amortisation and notional deductions count. An item already restricted by another rule does not, and nor does a deduction denied against income that is not taxed.

What counts as additional cash tax

  • Tax over and above what would have been paid under the ordinary rules, for the taxable year in which the Fiscal Year ends
  • A jurisdiction may collect it as a separate tax or by deeming income, instead of denying a deduction
  • Reducing a loss carried forward is not cash tax in the year: it counts only when income later arises against it
  • Which local entities bear it is for domestic law, which may put it first on entities the group wholly owns so that minority shareholders are not burdened
  • Where an amended return is needed because the allocation was not known in time, no late-filing or late-payment penalty should follow

The balance

  • Amount to realise this year = the amount allocated this year + what is carried forward
  • Carried forward = the amount to realise less the additional cash tax expense achieved, and not below nil

An excess is not a credit

If the adjustment produces more additional cash tax than is owed, nothing is carried. Article 2.4 does not carry a surplus back or forward, and the result says so rather than inventing one.

A shortfall has a consequence next year

Article 2.6.3 deems the jurisdiction's UTPR Percentage to be zero while the amount allocated has not produced additional cash tax equal to it, so a new allocation is not piled on an unrealised one.

The carry-forward has no time limit of its own

It runs year after year until the amount is collected, and survives the group falling below the revenue threshold or the entity leaving the group. A domestic limitation period can cut it short; an amount lost that way is not re-allocated to another jurisdiction.

2.4.3 — an Investment Entity

The adjustment does not apply to a Constituent Entity that is an Investment Entity, so nothing is realised through it and no shortfall is computed.

Order of testing

  1. 1

    Inputs requiring your determination

    Whether the entity is an Investment Entity, and then the allocation, the balance carried in and the additional cash tax achieved — nil entered, not omitted.

  2. 2

    Investment Entities

    No adjustment applies to an Investment Entity.

  3. 3

    Additional cash tax expense against the amount to realise

    A shortfall is carried forward; otherwise the amount is fully realised, and any excess is not a credit.

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.

Fully realised

The adjustment produces the whole EUR 10 million allocated.

Computed

The UTPR Top-up Tax Amount is fully realised for FY2026 as computed: the adjustment produced additional cash tax expense of EUR 10,000,000 against EUR 10,000,000 to realise, so nothing is carried forward. Based on the figures you supplied.

Workings

UTPR Top-up Tax Amount allocated this yearArticle 2.4.1 — as supplied
EUR 10,000,000
Carried forward from earlier yearsArticle 2.4.2 — as supplied
EUR 0
Amount to realiseArticle 2.4.2 — the allocation plus what is carried forward
EUR 10,000,000
Additional cash tax expense achievedArticle 2.4.1 — as supplied
(EUR 10,000,000)
Carried forward to the next Fiscal YearArticle 2.4.2 — the amount to realise less what was achieved, and not below nil
EUR 0

Decided by the additional cash tax expense against the amount to realise

A shortfall

The adjustment produces only EUR 6 million of the EUR 10 million, so EUR 4 million is carried forward.

Computed

EUR 4,000,000 is carried forward for FY2026 as computed: the amount to realise is EUR 10,000,000 — EUR 10,000,000 allocated plus EUR 0 carried forward — and the adjustment produced additional cash tax expense of only EUR 6,000,000. Article 2.4.2 carries the difference into the succeeding Fiscal Years, where it is adjusted again to the extent possible. Until the amount allocated has produced additional cash tax equal to it, Article 2.6.3 deems this jurisdiction's UTPR Percentage to be zero for later years. Based on the figures you supplied.

Workings

UTPR Top-up Tax Amount allocated this yearArticle 2.4.1 — as supplied
EUR 10,000,000
Carried forward from earlier yearsArticle 2.4.2 — as supplied
EUR 0
Amount to realiseArticle 2.4.2 — the allocation plus what is carried forward
EUR 10,000,000
Additional cash tax expense achievedArticle 2.4.1 — as supplied
(EUR 6,000,000)
Carried forward to the next Fiscal YearArticle 2.4.2 — the amount to realise less what was achieved, and not below nil
EUR 4,000,000

Decided by the additional cash tax expense against the amount to realise

A balance carried in

EUR 3 million is carried in on top of this year's EUR 10 million and the adjustment produces EUR 10 million.

Computed

EUR 3,000,000 is carried forward for FY2026 as computed: the amount to realise is EUR 13,000,000 — EUR 10,000,000 allocated plus EUR 3,000,000 carried forward — and the adjustment produced additional cash tax expense of only EUR 10,000,000. Article 2.4.2 carries the difference into the succeeding Fiscal Years, where it is adjusted again to the extent possible. Until the amount allocated has produced additional cash tax equal to it, Article 2.6.3 deems this jurisdiction's UTPR Percentage to be zero for later years. Based on the figures you supplied.

Workings

UTPR Top-up Tax Amount allocated this yearArticle 2.4.1 — as supplied
EUR 10,000,000
Carried forward from earlier yearsArticle 2.4.2 — as supplied
EUR 3,000,000
Amount to realiseArticle 2.4.2 — the allocation plus what is carried forward
EUR 13,000,000
Additional cash tax expense achievedArticle 2.4.1 — as supplied
(EUR 10,000,000)
Carried forward to the next Fiscal YearArticle 2.4.2 — the amount to realise less what was achieved, and not below nil
EUR 3,000,000

Decided by the additional cash tax expense against the amount to realise

A loss-making local entity

EUR 10 million is allocated to a jurisdiction where the group's only entity is in a tax loss. Denying a deduction reduces the loss carried forward and produces no tax this year, so nothing is realised and the whole amount is carried forward.

Computed

EUR 10,000,000 is carried forward for FY2026 as computed: the amount to realise is EUR 10,000,000 — EUR 10,000,000 allocated plus EUR 0 carried forward — and the adjustment produced additional cash tax expense of only EUR 0. Article 2.4.2 carries the difference into the succeeding Fiscal Years, where it is adjusted again to the extent possible. Until the amount allocated has produced additional cash tax equal to it, Article 2.6.3 deems this jurisdiction's UTPR Percentage to be zero for later years. Based on the figures you supplied.

Workings

UTPR Top-up Tax Amount allocated this yearArticle 2.4.1 — as supplied
EUR 10,000,000
Carried forward from earlier yearsArticle 2.4.2 — as supplied
EUR 0
Amount to realiseArticle 2.4.2 — the allocation plus what is carried forward
EUR 10,000,000
Additional cash tax expense achievedArticle 2.4.1 — as supplied
EUR 0
Carried forward to the next Fiscal YearArticle 2.4.2 — the amount to realise less what was achieved, and not below nil
EUR 10,000,000

Decided by the additional cash tax expense against the amount to realise

An excess

The adjustment produces EUR 15 million against EUR 10 million owed: the excess is not a credit.

Computed

The UTPR Top-up Tax Amount is fully realised for FY2026 as computed: the adjustment produced additional cash tax expense of EUR 15,000,000 against EUR 10,000,000 to realise, so nothing is carried forward. The EUR 5,000,000 produced in excess is not carried back or forward — Article 2.4 provides no credit for it. Based on the figures you supplied.

Workings

UTPR Top-up Tax Amount allocated this yearArticle 2.4.1 — as supplied
EUR 10,000,000
Carried forward from earlier yearsArticle 2.4.2 — as supplied
EUR 0
Amount to realiseArticle 2.4.2 — the allocation plus what is carried forward
EUR 10,000,000
Additional cash tax expense achievedArticle 2.4.1 — as supplied
(EUR 15,000,000)
Carried forward to the next Fiscal YearArticle 2.4.2 — the amount to realise less what was achieved, and not below nil
EUR 0

Decided by the additional cash tax expense against the amount to realise

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

4 inputs still need your determination:

  • Is the Constituent Entity being adjusted an Investment Entity? Article 2.4.3 provides that the adjustment does not apply to one.
  • What UTPR Top-up Tax Amount is allocated to the jurisdiction for the Fiscal Year (Article 2.6)? Enter nil if none.
  • What difference is carried forward from earlier Fiscal Years under Article 2.4.2? Enter nil if there is none.
  • What additional cash tax expense did the adjustment — the denial of a deduction, or equivalent adjustment under domestic law — actually produce for the taxable year in which the Fiscal Year ends (Article 2.4.2)? Enter nil if none.

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

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Reference, not tax advice.

Pankaj Agarwal — Tax Technology Leader