Revised time estimates for enacting a revamp of international tax rules are more realistic than originally projected by the U.S., its European allies and the intergovernmental body brokering the changes. The new projections better reflect the daunting work of approving and implementing both provisions, or “pillars,” of an agreement signed by 141 jurisdictions. Pillar One would reallocate taxing rights to countries where certain companies have profits but no physical presence, while Pillar Two would impose a 15% global minimum tax on large multinational companies based on their financial statement income. Tax experts had expressed concern that the Paris-based Organization for Economic Cooperation and Development was being too optimistic in November 2021 when it announced a planned timeline for implementing the pillars by 2023. That announcement followed an October agreement to an outline of the two-pillar tax deal by participating countries and territories. This year, OECD officials have said they expect to complete by mid-2023 a final report laying out technical and legal details of the global tax overhaul, following the anticipated publication by the end of 2022 of a form on which multinationals would list their Pillar Two tax obligations.
In the U.S., proposed changes by President Joe Biden to align the Code with the OECD-led deal wouldn’t take effect—assuming passage by Congress followed by a presidential signature—until tax years starting January 1, 2024 at the earliest, according to Treasury Department estimates. In late December, the OECD issued model tax rules addressing, among other provisions, the treatment of business credits under Pillar Two. Some American companies and industry groups have complained that other countries might be able to tax multinationals if their U.S. tax rates fell below the global minimum due to credits.
Also, the revisions Biden is pursuing to provisions of the 2017 Tax Cuts and Jobs Act, particularly a measure on global intangible low-taxed income (GILTI) so that it conforms with Pillar Two, is critical to the discussion. Biden’s proposed budget for fiscal 2023, presented in March, also calls for moving the U.S. from its current base erosion and anti-abuse tax (BEAT) to the undertaxed-profits rule (UTPR). The UTPR and an income inclusion rule (IIR) were written into the global deal to serve as “top-up taxes” in the event a jurisdiction’s tax code didn’t rise to the 15% threshold, as can happen when a multinational based in that jurisdiction pays a subminimum rate elsewhere.
There are several significant hurdles to overcome in this area for implementation of the two pillar global tax framework. Stay tuned for further updates as then become available, and do not hesitate to reach out to McGuire Sponsel’s Global Business Services team with any questions or assistance needed in the areas of international tax legislation.
Jason Rauhe, CPA
Jason Rauhe, CPALearn moreContact Jason
Jason Rauhe, CPA is a Principal in the firm’s Global Business Services practice and is responsible for assisting clients and adding depth in all areas of the firm’s international tax consulting services including transfer pricing, and the firm’s compliance expertise.
Rauhe previously served as Director of International Tax at a Top 100 CPA Firm, where he was responsible for the firm’s international tax division and major industry alliance networks.