Although the US has not yet implemented the two-pillar global tax plan from the Organization for Economic Co-operation and Development (OECD), the Treasury Department is actively engaged in discussions with member nations to help facilitate the rollout of the 15% corporate global minimum tax, according to an official.
Speaking November 29 at an American Bar Association, Tax Section, conference centered on “Pillar Two” of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, Treasury Deputy Assistant Secretary (International Tax Affairs) Michael Plowgian said he is “perplexed” by the notion that there has not been movement on making the global minimum tax on multinational enterprises the law of the land.
He offered a reminder that member states in the European Union are directed to implement Pillar Two beginning 2024. Other countries considered the US’ “largest trading partners” are also “moving forward” with legislation, including Japan, South Korea, Australia, Canada, and Switzerland, Plowgian added. Such legislation has yet to manifest stateside, but the Biden administration “continues to strongly support the implementation of Pillar Two, both in the US and around the world.”
Plowgian addressed “confusion” around “the narrative that [Pillar Two] loses money,” stemming from reactions to a report from the Joint Committee on Taxation (JCT) released in June illustrating the wide-ranging revenue effects on the federal budget under different scenarios. Should Pillar Two take effect globally and in the US, the JCT forecasted a $56.5 billion revenue hit through 2033. Conversely, a Pillar Two rollout with the addition of an undertaxed profits rule, or UTPR, would result in revenue increases of as much as over $200 billion during the same period, according to the JCT.
“They say there’s a range in the baseline … with the midpoint actually being raising revenue for the US,” said Plowgian. “The other important thing to note about the JCT report is that in any scenario, US adoption of Pillar Two raises more revenue than the US doing nothing.”
He acknowledged that US multinationals are currently in a difficult position given the lack of US implementation, but offered reassurance in the form of the IRS’ lack of an expectation to receive Global Anti-Base Erosion (GloBE) returns.
“[T]here is not a plan at this stage for the IRS to collect GloBE information returns,” Plowgian stated. “We’ve been fairly upfront about this. There are questions about authority to collect GloBE information returns when the US has not implemented Pillar Two – there are definitely questions about resources to collect these. And then there’s also the question about efficacy, right? Our exchange of information network is more limited than a lot of countries. And so even if the IRS collected the GloBE information … it’s likely that a lot of groups would continue to have local filing obligations, even in that case.”
He also highlighted some areas where taxpayers can expect to see guidance soon from a priority list that currently has over 400 projects, such as the transitional country-by-country reporting (CbCR) safe harbor designed to reduce compliance requirements for operations conducted in lower-risk jurisdictions. The safe harbor applies to years beginning on or before December 31, 2026.
Forthcoming guidance will “clarify some of the issues there, but also … to provide anti-abuse rules for some of the planning that we’ve been hearing about in terms of book tax hybrids, and things to try and take advantage of the CbCR safe harbor,” said Plowgian.
Another area where there is ongoing work is “peer review,” he continued. “So there needs to be a process for determining which countries’ [income inclusion rules] are qualifying,” as well as UTPRs or qualifying domestic minimum top-up taxes. “And what’s the consequence if they’re not qualifying? How do you take that into account in the system?” Plowgian said this is “fairly challenging for the US, in particular, because we have not implemented the rules yet. And so it’s a little bit difficult to predict exactly how that’s going to play out over the next few years.”
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