The UTPR tax, short for Undertaxed Profits Rule, is a backstop mechanism under the OECD’s Pillar Two global minimum tax framework that lets jurisdictions collect top-up tax on a multinational group’s low-taxed profits when the primary charging rule fails to reach them. It works in tandem with the Income Inclusion Rule (IIR): the IIR pushes top-up tax up the ownership chain to the ultimate parent entity, and the UTPR sweeps up what the IIR misses by reallocating the liability sideways to jurisdictions where the group has employees and physical assets.1OECD. Global Minimum Tax Together, the two rules are meant to ensure that in-scope multinationals pay an effective tax rate of at least 15% in every jurisdiction where they operate.
When the UTPR Kicks In
The UTPR is a secondary rule by design. It only collects tax after the IIR has had its shot. There are three main situations where it takes over.
The first, and most common, is when the ultimate parent entity sits in a jurisdiction that hasn’t adopted the IIR. With no entity at the top of the chain able to collect the top-up tax, the UTPR steps in. The second is when the IIR applies only partially, which can happen with certain partially-owned subsidiaries whose low-taxed income the IIR cannot fully capture. The third is when an intermediate parent is itself located in a low-tax jurisdiction, leaving a structural gap the IIR cannot close from above.
Once triggered, the UTPR liability doesn’t land on the parent. It gets allocated outward to constituent entities in jurisdictions that have adopted the rule. The calculation of how much is owed happens globally, but collection is decentralized across the countries that have signed on.
Which Groups Are In Scope
The UTPR applies only to large multinational enterprise groups with annual consolidated revenue of at least EUR 750 million in at least two of the four fiscal years immediately preceding the tested year.2OECD. Pillar Two GloBE Rules Fact Sheets That’s the same threshold used for the entire Pillar Two system. Revenue is measured from the consolidated financial statements, so intercompany transactions drop out.
Several types of entities sit outside Pillar Two entirely: governmental entities, international organizations, non-profits, pension funds, and investment funds or real estate vehicles that serve as the group’s ultimate parent. Entities owned by these excluded organizations that only hold assets, invest funds, or perform ancillary activities are also carved out. Their revenue still counts toward the EUR 750 million threshold, but they don’t owe top-up tax.
How the Top-Up Tax Is Calculated
Before any UTPR allocation happens, the group has to figure out how much top-up tax is owed and where. This is a jurisdiction-by-jurisdiction exercise comparing the group’s effective tax rate against the 15% floor.
GloBE Income
Start with each constituent entity’s financial accounting net income or loss from the consolidated financial statements. Then adjust it. The main adjustments strip out dividends and equity gains that would double-count previously taxed income, add back illegal payments that were deducted, standardize stock-based compensation, correct for accounting-versus-tax currency mismatches, and exclude international shipping income.2OECD. Pillar Two GloBE Rules Fact Sheets The result is the entity’s GloBE Income. All constituent entities in the same jurisdiction are combined into a single jurisdictional total.
Covered Taxes and the ETR
The other side of the ratio is “covered taxes.” These start with the current tax expense in the financial statements and get adjusted for Pillar Two purposes. Covered taxes include current-year income taxes and deferred tax amounts reflecting temporary timing differences, with certain safeguards. Tax credits refundable within four years add to covered taxes; credits refundable only after four or more years reduce them. Taxes imposed by other jurisdictions on the same income (controlled foreign corporation taxes, withholding taxes) are pushed back to the jurisdiction where the income arose.2OECD. Pillar Two GloBE Rules Fact Sheets
The effective tax rate is covered taxes divided by GloBE Income for the jurisdiction. If it comes in below 15%, the gap is the top-up tax percentage. A jurisdiction sitting at a 10% ETR faces a 5% top-up percentage.
The Substance-Based Income Exclusion
The top-up percentage doesn’t apply to the full GloBE Income. First, the Substance-Based Income Exclusion (SBIE) shelters a slice of profit tied to real activity. The SBIE equals a percentage of eligible payroll costs plus a percentage of the carrying value of eligible tangible assets in the jurisdiction. Investment assets and assets held for sale don’t qualify. Tangible assets are valued at depreciated historical cost, and balance-sheet lease assets count.
At their permanent levels, both percentages are 5%. A ten-year transition that began in 2023 starts them higher and steps them down. For fiscal years beginning in 2026, the payroll carve-out is 9.4% and the tangible asset carve-out is 7.4%.3OECD. FAQs on Model GloBE Rules The rates decline each year until they reach 5% after 2032. Groups with significant local payroll and physical infrastructure see a bigger exclusion during the transition.
Putting It Together
Excess profit is GloBE Income minus the SBIE. Multiply excess profit by the top-up tax percentage, and that’s the jurisdiction’s total top-up tax. So if a jurisdiction has EUR 100 million of GloBE Income, an SBIE of EUR 20 million, and a 10% ETR, excess profit is EUR 80 million and the top-up tax is 5% of that, or EUR 4 million.
Add up the top-up tax from all low-taxed jurisdictions that the IIR didn’t already collect, and you have the aggregate UTPR liability. That figure is what the allocation formula then divides.
How the UTPR Splits the Bill Across Countries
The Allocation Key
The UTPR distributes the total liability using two equally weighted factors: employees and tangible assets. Each implementing jurisdiction’s share equals 50% of its proportion of the group’s total employees plus 50% of its proportion of the group’s total tangible assets, counting only employees and assets in jurisdictions that have adopted the UTPR. Tangible assets are measured at their average net book value over the fiscal year.1OECD. Global Minimum Tax
A country with a large workforce and manufacturing base absorbs more UTPR liability than one where the group has only a small sales office. Financial assets and intellectual property don’t enter the formula. Physical presence and headcount do.
Denial of Deduction or Equivalent Adjustment
Once a jurisdiction has its allocated share, it has to turn that into cash. The standard method is to deny local tax deductions for the group’s constituent entities in that jurisdiction, increasing their taxable income until the added tax matches the allocation. A jurisdiction can also use an “equivalent adjustment,” such as a standalone additional charge, as long as the collection is complete. The choice is up to domestic law.
If current-year deductions aren’t large enough to absorb the full allocation, the remainder carries forward to future years until the full amount is collected. Investment entities are excluded from the adjustment.
The QDMTT Escape Hatch
A Qualified Domestic Minimum Top-Up Tax (QDMTT) is the cleanest way for a jurisdiction to eliminate UTPR exposure on profits earned within its borders. A QDMTT calculates excess profits using the same GloBE methodology and taxes them up to 15% domestically before any cross-border rule applies. Where a jurisdiction’s QDMTT qualifies, the top-up tax for that jurisdiction is deemed zero for both IIR and UTPR purposes.4OECD. Global Anti-Base Erosion Model Rules (Pillar Two)
The logic is simple. If a low-tax jurisdiction collects the top-up tax itself, that revenue stays home. Without a QDMTT, the same revenue flows out to other countries through the IIR or UTPR. That’s why so many jurisdictions, including several that keep headline corporate rates below 15%, have moved quickly to adopt QDMTTs.
Transitional Safe Harbors
For the early years of Pillar Two, the OECD introduced a transitional safe harbor built on Country-by-Country Reporting (CbCR) data. It covers fiscal years beginning on or before December 31, 2026, but not fiscal years ending after June 30, 2028.5OECD. Safe Harbours and Penalty Relief – Global Anti-Base Erosion Rules (Pillar Two) A jurisdiction’s top-up tax can be deemed zero if it meets any one of three tests:
- De minimis test. Total revenue in the jurisdiction is below EUR 10 million and profit before income tax is below EUR 1 million on the CbCR for the fiscal year.
- Simplified ETR test. The jurisdiction’s simplified ETR, drawn from CbCR data and financial statement tax expenses, meets or exceeds the transition rate. For fiscal years beginning in 2026, that rate is 17%.
- Routine profits test. Profit before income tax on the CbCR does not exceed the SBIE amount for the jurisdiction, meaning all local profit reflects routine activity rather than excess returns.
Passing any one test zeroes the jurisdiction’s top-up tax for the year and takes it out of the UTPR allocation pool. That can dramatically cut the number of full GloBE calculations a group has to run. Once the transition ends, groups need the full ETR calculation for every jurisdiction unless a permanent QDMTT safe harbor applies.
Where U.S.-Parented Groups Stand
The U.S. position has been the single biggest variable in how the UTPR plays out. The U.S. has its own minimum tax on foreign income through the Global Intangible Low-Taxed Income (GILTI) regime, but GILTI blends income globally rather than country by country, and its effective rate can fall below 15% for some jurisdictions. The OECD’s Inclusive Framework has not recognized GILTI as a Qualified IIR, which would ordinarily expose U.S.-parented groups to UTPR charges in every adopting country.
The Corporate Alternative Minimum Tax (CAMT) adds another layer. It imposes a 15% minimum tax based on Adjusted Financial Statement Income, but again on a globally blended basis, and it treats foreign taxes as deductions rather than credits. A company could owe CAMT at home and still face top-up taxes abroad.
In mid-2025, the G7 and the United States issued a joint statement recognizing the U.S. minimum tax rules as “functionally equivalent” to Pillar Two for U.S.-parented groups. Under that understanding, U.S.-headquartered groups would be fully excluded from both IIR and UTPR top-up taxes on their domestic and foreign profits, contingent on the U.S. developing a “side-by-side” solution aligned with the framework. If adopting jurisdictions give the agreement legal effect through their own domestic rules, U.S.-parented groups drop out of the UTPR entirely. The side-by-side details are still being worked out, and implementation is jurisdiction-by-jurisdiction.
Where the UTPR Is Live
The EU Minimum Tax Directive required member states to enact the IIR by the end of 2023 and the UTPR by the end of 2024.6EUR-Lex. Council Directive (EU) 2022/2523 Most met the deadline, with the UTPR taking effect for fiscal years beginning on or after December 31, 2024.7Tax Foundation. Pillar Two Implementation in Europe, 2025
Outside the EU, the United Kingdom enacted its UTPR in Finance Act 2025 for accounting periods beginning on or after December 31, 2024. Canada, Australia, and Thailand brought UTPR rules into effect on similar timelines. Switzerland decided not to activate the UTPR for the time being. Hong Kong enacted the framework but left the UTPR’s effective date to be set later. By 2026, the UTPR is live across most of the EU, the UK, Canada, and several Asia-Pacific jurisdictions, with significant economies still outside the system.
Filing and Compliance
All Pillar Two calculations feed into one document: the GloBE Information Return (GIR). It covers the group structure, the ETR calculation for every jurisdiction, the top-up tax for each low-taxed jurisdiction, SBIE details, and the specific UTPR allocation to each implementing country. A designated filer, usually the ultimate parent, files the GIR with its home tax authority, which then shares data with other implementing jurisdictions through competent authority agreements.
The GIR is due 15 months after the last day of the reporting fiscal year. For the first year a group comes into scope, that stretches to 18 months.8Canada.ca. Get Ready to File
Each constituent entity in an implementing jurisdiction also has to fold its allocated UTPR amount into its local tax filings. In some jurisdictions that means a line item reducing allowable deductions; in others, a direct additional tax charge. Either way, the entity pays the higher local bill through normal procedures. Supporting records need to cover every step in the chain, from financial accounting income through GloBE adjustments, covered taxes, SBIE amounts, and allocation-key inputs. For groups spread across many countries, building the data infrastructure is often the most expensive part of Pillar Two, well beyond the top-up tax itself.
Penalty regimes vary by country but follow a common pattern of escalating consequences for late or false filings, with penalties tied to the size of the underpayment and the duration of the failure. Some jurisdictions provide transitional relief for early fiscal years where the group used reasonable measures to apply the rules correctly.9Department of Justice Canada. Global Minimum Tax Act