Yvonne Diamond, Director, Financial Services Tax, BDO: The legislation in Part 4A TCA 1997 provides Undertaxed Profits Rule (UTPR) as well as Income Inclusion Rule (IIR) top-up tax and domestic top-up tax.

Each of these three taxes are included in Pillar Two rules, which provide that income of large groups is taxed at a minimum effective tax rate of 15% on a jurisdictional basis.

The Minimum Tax Directive provides for a European Union (EU) wide implementation of Pillar Two of the Organisation for Economic Co-operation and Development’s (OECD’s) Two Pillar solution.

The UTPR top-up tax rule is a secondary taxing rule designed to operate as a backstop to the IIR top-up tax. It ensures that top-up tax is allocated to group entities in implementing jurisdictions. The tax may apply if a group does not have a parent company in a jurisdiction that has implemented Pillar Two.

The UTPR comes into effect for fiscal years commencing on, or after, 31 December 2024. However, it may apply on, or after, 31 December 2023 in certain limited circumstances.

The rules apply to Multinational Enterprises groups or large-scale domestic groups. These rules apply where the revenue of the group exceeds €750m in two of the previous four fiscal years. For the purpose of the domestic top-up tax, Part 4A extends the rules to standalone entities that meet the revenue threshold. Certain entities, referred to as excluded entities, are outside the scope of the rules.

Peter Reilly, Tax Policy Leader, PwC Ireland: The UTPR is intended to serve as a backstop to the IIR by encouraging jurisdictions to adopt the Pillar Two rules and discouraging MNEs from structuring in a way that limits their exposure to Pillar Two taxation. This is because any top-up tax that is not levied by way of a QDMTT or IIR is intended to be picked up by the UTPR. From the perspective of an entity located in a UTPR implementing jurisdiction, the UTPR can apply in a group structure both upstream to a parent entity in a low-taxed jurisdiction, and laterally to sister companies in low-taxed jurisdictions. The UTPR is generally applicable as of 2025 for jurisdictions who have a UTPR in force. However, the Transitional UTPR Safe Harbour has delayed the application of the UTPR to Ultimate Parent Entity jurisdictions with a corporate income tax rate of 20% or more, which includes the United States.

Whenever, there is a top-up tax to be levied via the UTPR, this would be levied jointly by all relevant jurisdictions that have implemented a UTPR. This means that the UTPR top-up tax is split up amongst all relevant UTPR implementing jurisdictions based on a formulaic approach. This makes the application of the UTPR even more complicated for taxpayers to comply with when it comes to filing their GloBE Information Return (GIR) and domestic Pillar Two returns, and equally complex for the tax administrations to levy the UTPR in a coordinated fashion. Given that the UTPR has the potential to be incredibly complicated to apply in practice, this is another area where significant simplifications could be made in the Pillar Two framework.

Joe Walsh, Tax Director, Forvis Mazars: The Under-Taxed Profits Rule (UTPR) is a backstop mechanism which applies in jurisdictions which have an effective tax rate (ETR) below 15%, and where no qualifying top up tax (QDTT) or Income Inclusion Rule (IIR) are in place (broadly jurisdictions which have not adopted Pillar 2 rules). This mechanism allows entities in the group which are located in jurisdictions which have adopted Pillar 2 rules, to collect the top up tax due by subsidiaries, another sister company or a parent company located in a non-adopting jurisdiction.

The aim of UTPR is to ensure that the minimum ETR of 15% is indeed applied to all multinational groups worldwide, regardless of where their ultimate parent company is located and whether all such jurisdictions have adopted Pillar 2 rules in their legislation.

Without the UTPR, Pillar 2 rules will only ensure that the minimum tax rate reaches 15% in adopting countries. A mismatch would be created between adopting and non-adopting jurisdictions, with the risk that multinational groups would organise their activities in order to limit or avoid taxes in these jurisdictions. Pillar 2 was put in place to put an end to the competition that existed between countries to lower their tax rates to attract investment. The principle was that by agreeing on a minimum global tax, whether all jurisdictions applied the rules or not initially, eventually all jurisdictions would adopt the rules over time.

Without the back stop mechanism, Pillar 2 will only increase the minimum tax paid and the associated administrative burden in certain jurisdictions, while the competition between non-adopting jurisdictions to lower their tax rates in the hope of attracting new investments may again raise its head. Bringing everyone back to where the tax and corporate world was before October 2021.

This article appeared in the March 2025 edition of the Irish Tax Monitor.