UTPR (Undertaxed Profits Rule): The Secondary Top-Up Charge

Definition

The UTPR — the undertaxed profits rule — is the secondary charging mechanism of the GloBE rules: where the IIR (the primary charge, the parent’s inclusion) does not reach the top-up tax (the parent jurisdiction’s IIR not applied, or not covering the full top-up), the other in-scope jurisdictions (the jurisdictions of the group’s other in-scope entities) charge the top-up on the undertaxed profit — the secondary charge, the backstop where the primary does not reach. The UTPR is the second mechanism in the IIR, UTPR & QDMTT sequence — after the IIR (the primary), and alongside the QDMTT (the domestic minimum, where enacted).

The UTPR, in one computation:
  1. The in-scope group entity (the consolidated CbC group) with the
     ETR < 15% (the undertaxed profit, the top-up tax computed)
  2. The IIR check: the parent jurisdiction’s IIR applied? (the primary
     charge, the parent’s inclusion)
  3. Where the IIR does not reach (not applied, or not covering the full
     top-up): the UTPR engages — the other in-scope jurisdictions (the
     group’s other in-scope entities’ jurisdictions) charge the top-up
     on the undertaxed profit (the secondary charge, the backstop)
  4. The allocation: the top-up allocated to the other in-scope
     jurisdictions on the model rules’ basis (the allocation weights,
     the jurisdictional shares)

The element	The content
The trigger	The in-scope group entity’s jurisdictional ETR below 15% (the undertaxed profit, the top-up tax computed) — and the IIR not reaching the top-up (the primary not applied, or not covering)
The charge	The top-up tax ((15% − ETR) × (ACI − SBIE)) — the top-up on the undertaxed profit, the substance excluded — charged by the other in-scope jurisdictions
The chargers	The other in-scope jurisdictions (the jurisdictions of the group’s other in-scope entities) — the secondary charge, the backstop where the IIR does not reach
The allocation	The top-up allocated to the other in-scope jurisdictions on the model rules’ basis (the allocation weights, the jurisdictional shares) — the worked allocation example
The sequence	The UTPR is the secondary mechanism — the IIR (the primary) first, the QDMTT (the domestic, where enacted) the priority, the UTPR the backstop where the IIR does not reach

The working read (the IIR, UTPR & QDMTT guide): the UTPR is the backstop — the charge that ensures the top-up is collected even where the parent jurisdiction’s IIR does not reach (the parent jurisdiction without the IIR enacted, or the IIR not covering the full top-up). The allocation (the model rules’ basis, the jurisdictional shares) is the UTPR’s mechanics — the top-up allocated to the other in-scope jurisdictions on the weights (the jurisdictional profit, the allocation formula). The priority (the QDMTT, where enacted, takes priority over both the IIR and the UTPR — the domestic minimum first) is the UTPR’s condition. The transitional safe harbour (the CbCR-based ETR test) can avoid the top-up (and the UTPR) for the applicable years.

Example

The MNE group (the consolidated revenue €2bn, in scope): the Singapore entity (the in-scope group entity) has the jurisdictional ETR of 5% (the ACI €40m, the covered taxes €2m — below the 15% floor). The top-up tax: (15% − 5%) × (€40m − SBIE). The parent jurisdiction (say the UK) has not enacted the IIR (the primary not applied) — the UTPR engages: the other in-scope jurisdictions (the jurisdictions of the group’s other in-scope entities — say Germany, France, the other in-scope jurisdictions) charge the top-up on the Singapore entity’s undertaxed profit, allocated on the model rules’ basis (the allocation weights, the jurisdictional shares). The sequence: the IIR (the primary) not applied (parent jurisdiction without the IIR); the UTPR (the secondary) engages (the other in-scope jurisdictions charge the top-up); the QDMTT (the domestic) checked (where any of the in-scope jurisdictions has enacted it, the QDMTT’s priority). The transitional safe harbour checked for the applicable years.

See also

• IIR, UTPR & QDMTT: The Three Charging Mechanisms (the guide)
• IIR (Income Inclusion Rule) · QDMTT
• Top-Up Tax · GloBE

FAQ

UTPR or IIR — which is the primary charge? The IIR (the income inclusion rule, the parent’s inclusion of the top-up) is the primary charge — the first mechanism in the sequence. The UTPR (the undertaxed profits rule, the other in-scope jurisdictions’ charge) is the secondary — the backstop where the IIR does not reach (the parent jurisdiction without the IIR, or the IIR not covering the full top-up). The sequence: the QDMTT (the domestic, where enacted, the priority) → the IIR (the primary) → the UTPR (the secondary, the backstop). The IIR, UTPR & QDMTT guide has the priority and the sequence.

How is the UTPR’s top-up allocated to the other jurisdictions? On the model rules’ basis — the allocation weights (the jurisdictional profit, the allocation formula) determine each in-scope jurisdiction’s share of the top-up. The worked allocation example has the mechanics: the top-up computed (the (15% − ETR) × (ACI − SBIE)), the allocation (the weights, the jurisdictional shares), the charge (each in-scope jurisdiction charges its share). The allocation is the UTPR’s mechanics — the top-up is not concentrated in one jurisdiction, but allocated across the in-scope group’s other jurisdictions on the model rules’ basis.

Does the UTPR apply where the parent jurisdiction has the IIR? No — the UTPR is the secondary (the backstop) where the IIR does not reach (the parent jurisdiction without the IIR enacted, or the IIR not covering the full top-up). Where the parent jurisdiction has the IIR enacted and it covers the top-up, the IIR (the primary) charges the top-up, and the UTPR does not engage (the primary reached the top-up, the backstop not needed). The UTPR’s role is the gap-filler — the top-up collected even where the primary does not reach, on the model rules’ allocation to the other in-scope jurisdictions.