How the UTPR will increase compliance complexity in 2025

Highlights:

A new global tax rule (UTPR) starts in 2025 to ensure large multinational companies pay at least a 15% effective tax rate worldwide, even if the main rule doesn’t apply.
Compliance will become more complex, as each country may implement the rule differently, requiring companies to monitor and adjust for tax rules in every country they operate.
Detailed data collection is required, with companies needing to calculate and report effective tax rates and related data for each subsidiary in each country every year.
Risk of double taxation increases, as more than one country may claim extra tax on the same profits, making careful coordination and new systems necessary to avoid being taxed twice.

The global tax landscape is changing fast. One of the most significant changes on the horizon is the introduction of the Undertaxed Payments Rule (UTPR) in 2025. As part of the Organisation for Economic Co-operation and Development’s (OECD) Pillar Two global minimum tax rules, the UTPR aims to ensure that large multinational enterprises (MNEs) pay at least a 15 percent effective tax rate in every jurisdiction where they operate. While the goal is to curb tax avoidance, the practical effect is that MNEs will soon face a much more complicated compliance environment.

In this post, we’ll explain what the Undertaxed Payments Rule is, how it fits into the broader global minimum tax framework, and the key ways it will increase compliance complexity for multinational companies.

What is the Undertaxed Payments Rule (UTPR)?

The Undertaxed Payments Rule is one of two main enforcement mechanisms under Pillar Two. The other is the Income Inclusion Rule (IIR). Both aim to ensure that the profits of large MNEs—those with annual revenues of at least 750 million euros—are taxed at a minimum effective rate of 15 percent, no matter where those profits are earned.

Here’s how the UTPR works in simple terms:

If a subsidiary of an MNE pays less than 15 percent tax in a certain country, and that income is not caught by the parent company’s IIR, other countries where the MNE operates can step in and collect additional taxes to make up the difference.

The UTPR acts as a backstop to the IIR, ensuring that no income falls through the cracks.

The rule applies to all payments that reduce taxable income, not just interest or royalties.

How does the UTPR fits into Pillar Two?

Pillar Two is a set of rules agreed by more than 140 countries under the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). Its goal is to make sure MNEs pay a fair share of tax everywhere they do business.

The two main rules under Pillar Two are:

Income Inclusion Rule (IIR): The parent company must pay a top-up tax if any subsidiary pays less than the minimum tax rate.

Undertaxed Payments Rule (UTPR): If the IIR does not apply, countries where the MNE operates can collect the top-up tax.

Why will the UTPR increase compliance complexity?

The UTPR adds a new layer of complexity for MNEs, on top of existing tax requirements. Here’s why:

Multiple jurisdictions, multiple rules

Each country can implement the UTPR in its own way, leading to different interpretations and requirements.

MNEs must monitor the rules in every country where they have operations, not just where they are headquartered.

Companies will need to adjust their systems to track effective tax rates and payments in each jurisdiction.

Detailed data collection and reporting

Companies must calculate the effective tax rate for each subsidiary, in each country, for each year.

This means tracking not just income and taxes paid, but also adjustments for special tax incentives, deferred tax assets, and more.

Risk of double taxation

Because the UTPR allows multiple countries to claim top-up tax, there is a real risk that the same income could be taxed more than once.

MNEs must carefully coordinate their filings to avoid being taxed by several countries on the same profits.

This coordination will require new processes and possibly new technology.

Increased need for documentation and transparency

Tax authorities will expect detailed documentation to support every calculation and claim.

MNEs must maintain clear records.

Preparing for the 2025 UTPR and beyond

With the Undertaxed Payments Rule set to take effect in 2025, multinational enterprises cannot afford to take a wait-and-see approach. The new compliance requirements, data collection burdens, and risk of double taxation mean that tax teams need to act now to assess their exposure and update their processes. Early preparation will be critical to minimizing risk and ensuring a smooth transition when the rules come into force.

How your organization can stay ahead of the curve

Navigating the UTPR and the broader Pillar Two framework will be challenging—but understanding the requirements is the first step. For a deeper dive into how these changes will affect your tax provision process and practical steps you can take today, download our comprehensive white paper.