What Is the Undertaxed Payment Rule (UTPR)?
The Undertaxed Payment Rule (UTPR) is a Pillar Two global minimum tax mechanism allocating residual top-up tax not collected under the income inclusion rule.
Also known as: UTPR, Undertaxed Profits Rule.
How Undertaxed Payment Rule (UTPR) works
The Undertaxed Payment Rule (UTPR) is a backstop within the Pillar Two global minimum tax under which constituent entities of a large multinational group bear an additional tax expense equal to their share of top-up tax on low-taxed profits not already charged under the income inclusion rule. In the EU, Directive 2022/2523 applies to groups with consolidated revenue of at least EUR 750 million and a 15% minimum rate. Residual top-up tax is allocated among UTPR jurisdictions by a formula based on employees and tangible assets. Implementation dates and safe harbours vary by country.
Undertaxed Payment Rule (UTPR) vs Income Inclusion Rule (IIR)
Unlike the Income Inclusion Rule, which charges top-up tax at the parent entity, the UTPR collects residual top-up tax from other group entities when parent-level collection does not occur.
Example
Illustrative example: A large group's parent sits in Country C, which has not adopted an income inclusion rule, and a subsidiary in Country D pays low effective tax. Group entities in Country A and Country B, which apply the UTPR, bear shares of the residual top-up tax based on their staff and assets.
Common misconception
Myth: The UTPR affects freelancers and small companies owned by nomads.
Reality: The UTPR generally applies only to multinational groups above the revenue threshold, such as EUR 750 million under the EU Directive, not to individuals or small businesses.
Frequently asked questions
How does the UTPR differ from the IIR?
The Income Inclusion Rule charges top-up tax at the parent level, while the Undertaxed Payment Rule acts as a backstop, reallocating any residual top-up tax among group entities in jurisdictions applying the rule.
Who is affected by the UTPR?
The Undertaxed Payment Rule targets multinational groups with consolidated revenue of at least EUR 750 million in two of the four preceding years, under the EU Minimum Tax Directive and comparable national rules.
Related terms
- Pillar Two — Framework containing the UTPR
- Top-Up Tax — Amount the UTPR collects
- Global Minimum Tax — Policy objective enforced through the UTPR
- Base Erosion and Anti-Abuse Tax (BEAT) — US counterpart targeting deductible related-party payments
Related guides
- Global tax reform and US digital nomads — Context on global minimum tax reforms
Sources
Last verified: 2026-10-09. This entry is general information, not tax or legal advice; rules vary by country and change over time.
