The Compatibility of the UTPR and Japan's Tax Treaties

Abstract

Some commentators have argued that the UTPR (formerly known as the undertaxed payments rule) would conflict with existing tax treaties. This argument now appears in the U.S. political context as well. In reality, however, a critical mass of jurisdictions other than the United States is firmly preparing to implement the UTPR. Apparently, criticism against the UTPR was not widely accepted in the end. How could this happen? This article examines the critical arguments against the UTPR. The article begins by examining the tax treaty provisions that potentially conflict with the UTPR in the following order: the business profit provision and saving clause, the permanent establishment attributable profit provision (arm's-length principle), the ownership nondiscrimination clause, and the PE nondiscrimination clause. The section that follows presents issues regarding applicable treaties. The end of that section introduces findings from prior research that the UTPR is not a covered tax under the treaty. The next section discusses Japanese case law regarding the business profit provision to reinforce the arguments made in the preceding chapter. The last section is the conclusion.

Keywords: UTPR, GloBE, Pillar 2, OECD, Tax treaty, Japan

JEL Classification: K33, K34