Treaty Compatibility of the IIR and the UTPR

Abstract: This paper explores the compatibility of the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR) with existing tax treaties. The paper first assesses whether the taxes under IIR and UTPR meet the coverage criteria of Art. 2 of the OECD Model Convention (MC) and then analyses potential treaty infringements, focusing on Art. 7, 9, and 10(5), highlighting the inherent contradiction between tax treaties, which aim to limit taxing rights, and the global minimum tax, which allows taxation of global profits. Next, the paper reviews the historical development of IIR and UTPR, emphasising the OECD’s initial recognition of the need for treaty amendments but noting the current lack of multilateral solutions, which poses potential dispute risks. In conclusion, the paper argues that the global minimum tax presents compliance challenges and legal uncertainties, questioning the binding effect of double taxation agreements. The article calls on the OECD to resolve these uncertainties through international agreements and advises countries to carefully consider the legal implications when implementing the IIR and the UTPR.