Under Pillar Two of the global tax deal, participating countries around the world have agreed to implement a 15% minimum tax on large multinational corporations with global or total revenues of more than €750 million (equivalent to about $825 million). Although the United States is in discussions with member nations to help facilitate the rollout of the 15% corporate global minimum tax, it has yet to move forward on its implementation.

Debate Over Revenue

Speaking at an American Bar Association conference late last year that focused on Pillar Two, Treasury Deputy Assistant Secretary (International Tax Affairs) Michael Plowgian said he’s “perplexed” by the notion that there hasn’t 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 in 2024. Plowgian then added that other countries, considered the “largest trading partners” of the United States, are also “moving forward” with relevant legislation. This includes Japan, South Korea, Australia, Canada and Switzerland. Such legislation has yet to manifest stateside, but the Biden administration “continues to strongly support the implementation of Pillar Two, both in the [United States] and around the world.”

Plowgian addressed “confusion” around “the narrative that [Pillar Two] loses money,” which largely arose from a June report from the Joint Committee on Taxation (JCT) that hypothesized wide-ranging revenue effects on the federal budget under different scenarios. Should Pillar Two take effect globally, including in the United States, the JCT forecasted a $56.5 billion revenue hit through 2033. Conversely, the same report projected revenue increases of as much as $200 billion or more with the addition of an undertaxed profits rule (UTPR).

“They say there’s a range in the baseline … with the midpoint actually being raising revenue for the [United States],” said Plowgian. “The other important thing to note about the JCT report is that, in any scenario, U.S. adoption of Pillar Two raises more revenue than the [United States] doing nothing.”

IRS Involvement

Plowgian acknowledged that U.S. multinational businesses are currently in a difficult position given the lack of U.S. implementation of Pillar Two. But he offered reassurance that the IRS doesn’t expect to ask for information returns related to Pillar Two, which is also sometimes referred to as the Global Anti-Base Erosion (GloBE) Rules.

“[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 [United States] has not implemented Pillar Two — [and] there are definitely questions about resources to collect these.”

For more information about how the IRS is preparing for the global tax deal, see “IRS to Issue Proposed Regs on Pillar Two” below.

Guidance On the Way

Plowgian also highlighted some areas where taxpayers can soon expect to see guidance from a priority list that currently has more than 400 projects. One example he cited is 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 Dec. 31, 2026.

In addition, forthcoming guidance will “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’s 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?” he asked.

A Challenging Endeavor

Plowgian summed it all up by saying that Pillar Two is “fairly challenging for the [United States] 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.” To keep up with the latest developments related to the global tax deal, check our future GlobalVIEW newsletters.