Evaluating the Impact of Pillar Two Global Minimum Tax

By: Stuart E. Leblang, Michael J. Kliegman, Howard Leventhal and Amy S. Elliott

Parts of the Pillar Two 15-percent global minimum tax regime became effective on January 1, 2024 in some thirty countries (and counting),¹ but the United States remains a holdout. Multinationals that operate in countries that have implemented a qualified domestic minimum top-up tax (QDMTT) or an income inclusion rule (IIR)—two of the three main Global anti-Base Erosion (GloBE) rules—may be facing increased taxes (see our report on this topic, “Denial Is Futile—The Global Minimum Tax Is Coming. Will Implementation Impact Equity Valuations?”²).

• The market does not seem to appreciate the risk this incremental tax poses to companies’ earnings, likely because many company disclosures generally remain vague.³ It is hard to gauge risk with statements like: “unable to predict . . . what effect such changes would have” and “could adversely affect our effective tax rate.”⁴
• While Pillar Two should generally increase the tax hit on certain multinationals, estimating the magnitude for a firm is not a simple exercise. The global minimum tax is levied at a rate (15 percent) that is now more than the 13.125 percent⁵ effective rate on global intangible low-tax income (GILTI), but GILTI will go up to 16.56 percent in 2026.
• Because GILTI does not use financial accounting income as its base while Pillar Two does, with certain adjustments,⁶ and because certain U.S. tax credits (namely the research credit) currently don’t reduce Pillar Two taxes, many U.S. multinationals will be deemed undertaxed entities subject to a top-up tax. While restructuring options and a safe harbor may postpone the pain of Pillar Two until 2026,⁷ the pain will be real.
• The effects of Pillar Two “are unambiguously negative for shareholders of impacted U.S. firms.”⁸
• One accounting firm estimated that widespread adoption of Pillar Two could increase the overall cash tax effective tax rate of U.S. multinationals by 2.6 percentage points.⁹
• A handful of large public companies have already disclosed¹⁰ an estimated numerical impact of Pillar Two on their effective tax rates (ETRs) for 2024, including:
  • Johnson & Johnson (NYSE: JNJ), which estimated that its 2024 ETR will increase by approximately 5 percentage points compared to fiscal 2023¹¹;
  • Bristol-Myers Squibb Company (NYSE: BMY), which expects that its 2024 ETR (excluding specific items) will increase by approximately 1%¹²;
  • HSBC Holdings plc (NYSE: HSBC), which forecast an increase the Group’s annual ETR by between 5 and 1.0 percentage point¹³ (“in particular in respect of the Group’s banking operations in Bermuda and the Channel Islands”)¹⁴; and
  • Unilever plc (NYSE: UL), which estimated a combined impact of as much as
    2% increase to its Group ETR for 2024.¹⁵
• Some large public companies have indicated that they do not think there will be a material negative effect from Pillar Two this year, but that they will continue to evaluate it, as that may change in future years. These include Berkshire Hathaway Inc.¹⁶ (NYSE: BRK.B), Eli Lilly and Company¹⁷ (NYSE: LLY) and Nvidia Corporation¹⁸ (NASDAQ: NVDA).
  
  Other large public companies—including many in the tech sector—mention Pillar Two in passing in their most recent annual or quarterly filings, but do not indicate whether they think they will be harmed. These include Alphabet Inc.¹⁹ (NASDAQ: GOOG),com, Inc.²⁰ (NASDAQ: AMZN), Apple Inc.²¹ (NASDAQ: AAPL), Broadcom Inc.²² (NASDAQ: AVGO), General Electric Company²³ (NYSE: GE), Meta Platforms, Inc.²⁴ (NASDAQ: META), Visa Inc.²⁵ (NYSE: V) and Walmart Inc.²⁶ (NYSE: WMT). Certain others do not seem to have specifically addressed Pillar Two risk at all in their most recent annual filings, including Microsoft Corporation (NASDAQ: MSFT), JPMorgan Chase & Co. (NYSE: JPM) and Tesla, Inc. (NASDAQ: TSLA). We expect that as the 2024 Q1 filings come out in the coming weeks, we will see more detail about the impacts of Pillar Two.
  
  
• According to a review of Forms 10-K, about half of the companies in the S&P 500 warned shareholders that Pillar Two could negatively affect their after-tax earnings.²⁷
• Although the data is limited and subject to significant uncertainty, the initial indications do not appear to contradict the notion that Pillar Two exposure might be the greatest for large pharma and tech multinationals (given that they often have subsidiaries in low- or no-tax jurisdictions where they book profits tied to intellectual property).
• In January, the OECD estimated that the GloBE rules will increase global corporate tax revenues by as much as 8.1 percent (or $192 billion) per year, borne largely by those multinationals that might (among other things) take advantage of certain tax incentives to reduce their ETRs below 15 percent.²⁸

Pillar Two Analysis in Three Steps

There are three fundamental steps to figuring out which companies might be impacted (although when they might be impacted and by how much gets more complicated).

The first step is to get a basic grasp of the rules at play. For a refresher, you can read our report from last June, which is appended.²⁹ We have also included a table (on the right) with an overview of the three primary GloBE rules—the QDMTT, the IIR and the undertaxed profits rule (UTPR)—which generally apply in that order. (There is also the Subject to Tax Rule (STTR), which we will not address in this report, because (among other reasons) it has not yet been implemented.)

The second step is to look at whether the company in question has low-tax operations in (or has a low-taxed entity that is a subsidiary of an entity domiciled in) any of these 34 countries where (as of April 1) at least one³⁰ of the GloBE rules is in place: Australia, Austria, Barbados, Belgium, Bulgaria, Canada, Columbia, Croatia, Cyprus, Czech Republic, Denmark, Finland, France, Germany, Gibralter, Hungary, Ireland, Italy, Japan, Liechtenstein, Luxembourg, Netherlands, Norway, Romania, Slovakia, Slovenia, South Africa, South Korea, Spain, Sweden, Switzerland, United Kingdom, Vietnam and Zimbabwe. For this purpose, entities with an ETR below 15 percent (and some with an ETR above 15 percent) could get roped in. While the ETR calculation in the GloBE rules technically takes “Adjusted Covered Taxes” divided by “Net GloBE Income” (both defined terms), the starting point is the group’s consolidated financial statements.

To state the obvious, it is not enough to say that just because the company’s ETR in the jurisdiction is over 15 percent (if that is the case), you are safe from Pillar Two because you may benefit from certain tax incentives that are not recognized for GloBE ETR purposes and because the GloBE rules requires certain adjustments to GloBE income (including for historical transactions and intercompany restructurings) that may not be intuitive. Further, having high-taxed earnings in another jurisdiction will not help your Pillar Two analysis (this is not like GILTI).

This country-by-country exercise would be easier if companies publicly disclosed more of their financial information on a country-by-country basis. The expanded global tax risk disclosure rule-change implemented by FASB back in December³¹ is not set to go into effect until 2025, so investors will have to make do with imperfect information in the meantime.

The third step is to gain some perspective on the bigger picture. The United States is in an election year. While some politicians have expressed their disdain for Pillar Two,³² one could argue that it was Republicans’ Tax Cuts and Jobs Act (TCJA) (and specifically TCJA’s fundamental reforms to the international system of taxation, including the implementation of GILTI) that “laid the basis for negotiations”³³ critical to Pillar Two’s success. One could also argue that if opponents’ main issue with Pillar Two is that it cedes revenue for the U.S. fisc to other countries, then making GILTI country-by-country and replacing the base erosion anti-abuse tax (BEAT) with a UTPR—as was proposed in Treasury’s Green Book³⁴ —would solve that problem.

Will America fall in line (with implementing legislation after the election), or will the entire regime (with which the General Assembly of the United Nations recently took issue³⁵) fall apart? And what can firms expect in the meantime, given that the Treasury Department and the Internal Revenue Service (IRS) seem not to be particularly constrained by lawmakers’ wariness/ignorance of the GloBE rules. For example, the IRS recently issued guidance clarifying that certain Pillar Two taxes—namely QDMTTs and, in some instances, IIRs—may be creditable in the United States (meaning any additional Pillar Two tax burden might be offset by a reduced U.S. tax burden, however a detailed analysis is required for each jurisdiction’s QDMTT/IIR and many IIRs likely will not qualify as creditable to the U.S. parent).³⁶ To be clear, in no universe is it expected that IRS/Treasury will make UTPRs creditable to the U.S. parent.³⁷

How Did We Get Here?

The way we generally think about taxing the income of multinationals is source-based (where taxing authority is tied to the location of the economic activity triggering the tax). If the income is U.S.-source, then generally the United States gets to tax it (at the U.S. corporate income tax rate of 21 percent, after taking into account various deductions and other applicable adjustments). If the income is foreign-source (as a result of sales or activity in the Cayman Islands, for example), then generally the Cayman Islands gets to tax it (although because the Cayman Islands doesn’t have a corporate tax, it would not).

However, there are many exceptions that may give the United States a right to tax income associated with a U.S. multinational’s activities in, let’s say, the Cayman Islands (where let’s assume it has a subsidiary). The United States may tax some portion of such multinational’s Cayman income under the GILTI regime, because the GILTI rules allow the United States to deem a portion of the undertaxed Cayman income to be included on the return of the U.S. parent and taxable by the United States (under the theory that such income is arguably attributable to intangible assets that were inappropriately moved to a low-tax jurisdiction, eroding the U.S. tax base).

It's this base erosion risk—compounded by a “race-to-the bottom” mentality—that spurred some 145 jurisdictions including the United States (as of November 15, 2023) to join forces and accept the global minimum tax.⁴⁰ But just because the United States is a signatory (meaning that it committed to “accept the application of the GloBE rules applied by other” signatories), the United States has not adopted a Pillar Two compliant DQMTT, IIR or UTPR. And there are many lawmakers in Congress who are enraged that Treasury signed off on Pillar Two without the explicit blessing of Congress (and who argue that it is therefore unenforceable).

But now that we live in a world where the 15-percent global minimum tax rules (applied on a country-by-country basis) are starting to be implemented (generally, in 2024 for the QDMTT and the IIR and in 2025 for the UTPR—although the UTPR safe harbor essentially pushes that back to 2026 for all U.S.-parented groups⁴¹), Pillar Two risk has become a reality for many multinationals. In general, a multinational group with annual consolidated group revenue of at least €750 million, which is about US$820 million, in at least two of the preceding four years is within scope of the GloBE rules. Certain types of entities are excluded from Pillar Two altogether, including government entities, international organizations, nonprofits, pension funds and certain investment funds or real estate investment vehicles if (among other criteria) such fund/vehicle is the ultimate parent entity (UPE) (although the IIR and UTPR cannot be directly assessed against certain investment entities even if they are not the UPE.

Considering the Pain Points

In working through the risks posed by Pillar Two, the following additional considerations and pain points should help provide perspective:

• The U.S. research credit (the section 41 credit for increasing research activities, also known as the R&D credit) is currently not a qualified incentive under the GloBE rules (putting U.S. firms at risk for a top-up tax). The R&D credit is a big enough item for many companies that even if the corporate rate is increased in future years, many of them will still have enough R&D credits to reduce their U.S. ETR below 15 percent.⁴²
• Pillar Two implementation by major countries (and a lack of near-term implementation by the United States) clearly raises the risk that U.S. multinationals’ ETRs will be topped up to 15 percent while these same firms could continue to bear the additional U.S. burden of the corporate alternative minimum tax (CAMT) and GILTI expense allocation—arguably exacerbating global competitiveness concerns.⁴³
• While this pressure should make it more likely that U.S. lawmakers will ultimately decide to (at least⁴⁴) modify the GILTI regime so that it operates on a country-by-country basis, qualifying as an IIR under the GloBE rules, UTPRs could still apply to a U.S. parent company’s operations (especially since there is no guarantee that in-country expenditures ultimately deemed to be a qualified incentive under the GloBE rules will be respected by the UTPR-asserting country).
• There are those who feel strongly that Pillar Two will survive no matter what the United States does. However, others caution that if the United States fails to affirmatively adopt GloBE-compliant rules, the Pillar Two system may not be stable or sustainable.
• The United States is not the only major holdout. Over 75 Inclusive Framework signatories have made no public announcement regarding their intention to implement (or not) the GloBE rules. Other holdouts include China, India and Russia.
• More than half of all Fortune 500 companies in the world are headquartered in either the United States or China⁴⁵ —neither of which has adopted the GloBE rules. With economic nationalism on the rise, there is a risk that the United States and China may decide not to play ball and instead reject Pillar Two as unfair and harmful to their job creators. They may not be ready to hold hands and promise that they will not erode another country’s tax base in an effort to protect their own.
• Pillar Two workarounds (also known as qualified subsidies/incentives) are already under consideration. For example, jurisdictions including Vietnam, Singapore, Switzerland, Bermuda and Ireland are reportedly considering giving a refundable credit (which would otherwise be respected under the GloBE rules as a way to reduce ETR without triggering Pillar Two tax) for firms that move intellectual property into their jurisdictions.⁴⁶
• Even though the final model rules came out almost two years ago,⁴⁷ tricky interpretation questions raised by the Pillar Two regime are constantly being addressed in administrative guidance, which the OECD continues to issue (and jurisdictions’ implementing legislation all varies somewhat and is only deemed qualifying after a peer review process). While such administrative guidance is presented as merely clarifying in nature, it often contains significant, substantive changes to the rules, which generally are not effective until they are enacted into law by each jurisdiction.⁴⁸
• Three tranches of Pillar Two administrative guidance have already been released (the first in February 2023,⁴⁹ then in July 2023⁵⁰ and again in December 2023⁵¹), and more is expected (including a tranche that should be released in the coming weeks). Among other things, Treasury officials have indicated they are trying to get the OECD to issue administrative guidance providing that the U.S. R&D credit is a qualified incentive under the GloBE rules.⁵² For its part, the Biden administration has promised to “provide a mechanism to ensure U.S. taxpayers would continue to benefit from U.S. tax credits and other tax incentives that promote U.S. jobs and investment.”⁵³

With time and additional guidance, companies should be in a better position to model the impacts Pillar Two could have on their businesses, and the disclosures will become more helpful. First quarter 2024 earnings reports are being released in the coming weeks,⁵⁴ and we can expect to see projections of a company’s full-year Pillar Two taxes in their estimated annual ETRs.⁵⁵ Pillar Two represents a fundamental change to longstanding principles of international taxation that will impact cross-border capital flows. It is a tax increase, and there will be companies that will come out as “losers.” With the United States remaining on the sidelines—increasing the risk of double taxation—we will continue to stay on top of developments in this area and publish reports with critical updates.

One or more authors may have positions in stocks referred to in this article. Akin may represent individuals or entities that may have positions in stocks referred to in this article.

Akin Gump Strauss Hauer & Feld LLP has a full tax team closely following developments in this area. Please feel free to contact any of them with any questions.

^{1 PwC maintains a Pillar Two country tracker, where you can see the status of enactment (or lack thereof) concerning Pillar Two’s QDMTT, IIR, UTPR, transitional safe harbor and permanent safe harbor for more than 100 countries across Africa, the Americas, Asia/Asia Pacific, Eurasia, Europe, and the Middle East (https://www.pwc.com/gx/en/services/tax/pillar-two-readiness/country-tracker.html). For purposes of this article, we reviewed a summary of the tracker updated April 1, 2024.}

^{2 The report, from June 20, 2023, is appended.}

^{3 The International Accounting Standards Board (IASB) adopted a so-called IAS 12 exception such that certain information could be withheld until 2024. The disclosures we reviewed cover periods through 2023, so the exception is still being relied upon.}

^{4 See also the American Express Company (NYSE: AXP) disclosure: “if all OECD member countries were to implement these minimum tax guidelines in their current form, we expect that it would result in a significant increase to our effective tax rate.”}

^{5 Although the GILTI rate is only 10.5% in 2024 (the base 21% corporate rate with a 50% IRC §250 deduction) calculated on a blended basis across jurisdictions, there is a 20% foreign tax credit disallowance (aka haircut) that increases the effective GILTI rate to 13.125%. Absent change, in 2026, the §250 deduction goes down to 37.5%, increasing the effective rate to 16.56%.}

^{6 There are other important differences as well. For example, both GILTI and Pillar Two have substance-based carve-outs (GILTI’s is 10% of tangible assets), but Pillar Two’s is thought to be more generous (e.g., it includes certain payroll costs).}

^{7 Once UTPRs start to go into effect for U.S. UPEs in 2026 (see Note 32), if a multinational has an undertaxed entity somewhere in its group and it also has in its group an entity domiciled in a UTPR-adopting country, then it could be subject to additional tax.}

^{8 Alan Cole and Cody Kallen, Risks to the U.S. Tax Base from Pillar Two, Tax Foundation, August 2023 (https://taxfoundation.org/wp-content/uploads/2023/08/Risks-to-the-U.S.-Tax-Base-from-Pillar-Two.pdf).}

^{9 US QUEST report estimates widespread Pillar Two adoption outside the United States would result in an 18% increase in US multinationals' corporate tax liability, fewer jobs and less investment, EY, July 10, 2023 (https://taxnews.ey.com/news/2023-1107-us-quest-report-estimates-widespread-pillar-two-adoption-outside-the-united-states-would-result-in-an-18-percent-increase-in-us-multinationals-corporate-tax-liability-fewer-jobs-and-less-investment).}

^{10 Note that companies should be including GloBE taxes in the estimated annual ETR (AETR) computation as part of their U.S. GAAP disclosures (https://dart.deloitte.com/USDART/home/publications/deloitte/financial-reporting-alerts/2024/faq-pillar-two-international-tax-oecd), so we should be seeing more of these as the year progresses.}

^{11 Johnson & Johnson, Form 10-K, filed Feb. 16, 2024 (https://www.sec.gov/ix?doc=/Archives/edgar/data/200406/000020040624000013/jnj-20231231.htm).}

^{12 Bristol-Myers Squibb Company, Form 10-K, filed Feb. 13, 2024 (https://www.sec.gov/ix?doc=/Archives/edgar/data/14272/000001427224000044/bmy-20231231.htm).}

^{13 HSBC Holdings plc, Form 20-F, filed Feb. 22, 2024 (https://www.sec.gov/ix?doc=/Archives/edgar/data/0001089113/000108911324000004/hsbc-20231231.htm).}

^{14 Other (low-tax) jurisdictions called out in other companies’ disclosures that could cause them to be subject to Pillar Two include the Isle of Man, Jersey, Guernsey, and Ireland.}

^{15 Unilever, Form 20-F, filed March 14, 2024 (https://www.sec.gov/ix?doc=/Archives/edgar/data/0000217410/000021741024000017/ul-20231231.htm).}

^{16 Berkshire’s disclosure in its Form 10-K filed Feb. 26, 2024: “As currently designed, Pillar Two will ultimately apply to our worldwide operations. Considering we do not have material operations in jurisdictions with tax rates lower than the Pillar Two minimum, these rules are not expected to materially increase our global tax costs. There remains uncertainty as to the final Pillar Two model rules. We will continue to monitor U.S. and global legislative action related to Pillar Two for potential impacts.” (https://www.sec.gov/ix?doc=/Archives/edgar/data/0001067983/000095017024019719/brka-20231231.htm)}

^{17 Eli Lilly’s disclosure in its Form 10-K filed Feb. 21, 2024: “While we expect an increase in future years’ tax expense as a result of the global minimum tax, we do not anticipate a material impact to our 2024 consolidated results of operations. Our assessment of the impact for 2024 and subsequent years could be affected by legislative guidance, future enactment of additional provisions within the Pillar Two framework, and U.S. tax changes scheduled to occur in 2026 as part of the Tax Cuts and Jobs Act (2017 Tax Act).” (https://www.sec.gov/ix?doc=/Archives/edgar/data/59478/000005947824000065/lly-20231231.htm)}

^{18 Nvidia’s disclosure in its Form 10-K filed Feb. 21, 2024: “The OECD, and its member countries, continue to release new guidance and legislation on Pillar Two and we continue to evaluate the impact on our financial position of the global implementation of these rules. Based on enacted laws, Pillar Two is not expected to materially impact our effective tax rate or cash flows in the next fiscal year. New legislation or guidance could change our current assessment.” (https://www.sec.gov/ix?doc=/Archives/edgar/data/1045810/000104581024000029/nvda-20240128.htm)}

^{19 Alphabet’s disclosure in its Form 10-K filed Jan. 31, 2024: “The Organization for Economic Cooperation and Development (OECD) is coordinating negotiations among more than 140 countries with the goal of achieving consensus around substantial changes to international tax policies, including the implementation of a minimum global effective tax rate of 15%. Our effective tax rate and cash tax payments could increase in future years as a result of these changes.” (https://www.sec.gov/ix}

^{?doc=/Archives/edgar/data/1652044/000165204424000022/goog-20231231.htm)}

^{20 Amazon’s disclosure in its Form 10-K filed Feb. 2, 2024: “the European Union and other countries (including those in which we operate) have enacted or have committed to enact global minimum taxes, which may increase our tax expense in future years.” (https://www.sec.gov/ix?doc=/Archives/edgar/data/1018724/000101872424000008/amzn-20231231.htm)}

^{21 Apple’s disclosure in its Form 10-K filed Nov. 3, 2023: “the Organisation for Economic Co-operation and Development continues to advance proposals for modernizing international tax rules, including the introduction of global minimum tax standards. The Company’s effective tax rates are affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, the introduction of new taxes, and changes in tax laws or their interpretation. The application of tax laws may be uncertain, require significant judgment and be subject to differing interpretations.” (https://www.sec.gov/ix?doc=/Archives/edgar/data/320193/000032019323000106/aapl-20230930.htm)}

^{22 Broadcom’s disclosure in its Form 10-Q filed March 14, 2024: “Many countries have enacted or begun the process of enacting laws based on Pillar Two proposals, which may adversely impact our provision for income taxes, net income and cash flows. . . . Our tax incentives could also be adversely impacted if the global minimum tax provisions (Pillar Two) are adopted in a country in which we have an existing tax incentive.” (https://www.sec.gov/ix?doc=/Archives/edgar/data/1730168/000173016824000023/avgo-20240204.htm)}

^{23 GE’s disclosure in its Form 10-K filed Feb. 2, 2024: “During 2023, many countries took steps to incorporate Pillar 2 model rule concepts into their domestic laws. Although the model rules provide a framework for applying the minimum tax, countries may enact Pillar 2 slightly differently than the model rules and on different timelines and may adjust domestic tax incentives in response to Pillar 2. Accordingly, we still are evaluating the potential consequences of Pillar 2 on our longer-term financial position.” (https://www.sec.gov/ix?doc=/Archives/edgar/data/40545/000004054524000027/ge-20231231.htm)}

^{24 Meta’s disclosure in its Form 10-K filed Feb. 2, 2024: “As of July 2023, nearly 140 countries have approved a framework that imposes a minimum tax rate of 15%, among other provisions. As this framework is subject to further negotiation and implementation by each member country, the timing and ultimate impact of any such changes on our tax obligations are uncertain. Similarly, the European Commission and several countries have issued proposals that would apply to various aspects of the current tax framework under which we are taxed. . . . Due to the large and expanding scale of our international business activities, many of these types of changes to the taxation of our activities described above could increase our worldwide effective tax rate, increase the amount of non-income taxes imposed on our business, and harm our financial position, results of operations, and cash flows. Such changes may also apply retroactively to our historical operations and result in taxes greater than the amounts estimated and recorded in our financial statements.” (https://www.sec.gov/ix?doc=/Archives/edgar/data/1326801/000132680124000012/meta-20231231.htm)}

^{25 Visa’s disclosure in its Form 10-K filed Nov. 15, 2024: “In addition, changes in existing laws in the U.S. or foreign jurisdictions, including unilateral actions of foreign jurisdictions to introduce digital services taxes, or changes resulting from the Organization for Economic Cooperation and Development’s Program of Work, related to the revision of profit allocation and nexus rules and design of a system to ensure multinational enterprises pay a minimum level of tax to the countries where we earn revenue, may also materially affect our effective tax rate. A substantial increase in our tax payments could have a material, adverse effect on our financial results.” (https://www.sec.gov/ix?doc=/Archives/edgar/data/0001403161/000140316123000099/v-20230930.htm)}

^{26 Walmart’s disclosure in its Form 10-K filed March 15, 2024: “In particular, the OECD's Pillar Two initiative introduces a 15% global minimum tax applied on a country-by-country basis, which became effective in many jurisdictions in which we operate starting January 1, 2024. The impact of these potential new rules as well as any other changes in domestic and international tax rules and regulations could have a material effect on our effective tax rate.” (https://www.sec.gov/ix?doc=/Archives/edgar/data/104169/000010416924000056/wmt-20240131.htm)}

^{27 Martin A. Sullivan, Over 100 Large Companies Report Possible Adverse Pillar 2 Effects, Tax Notes, April 8, 2024 (subscription required).}

^{28 Note that the $192 billion figure takes into account both direct and indirect impacts (so it assumes, for example, a 50% reduction in profit shifting). Felix Hugger, Ana Cinta, González Cabral, Massimo Bucci, Maria Gesualdo and Pierce O’Reilly, The Global Minimum Tax and the taxation of MNE profit, OECD Taxation Working Papers No. 68, Jan. 9, 2024 (https://www.oecd.org/publications/the-global-minimum-tax-and-the-taxation-of-mne-profit-9a815d6b-en.htm).}

^{29 “Denial Is Futile—The Global Minimum Tax Is Coming. Will Implementation Impact Equity Valuations?” (June 20, 2023).}

^{30 While many of these jurisdictions have in place both an IIR and a QDMTT for 2024, certain have only one. For example, Cyprus, Japan, South Korea and Spain only have in place an IIR for 2024 and Barbados, Columbia, Gibralter, Slovakia, Switzerland and Zimbabwe only have in place a QDMTT for 2024 (at least as of 4/1/2024, with certain information still to be confirmed).}

^{31 FASB Accounting Standards Update (ASU) No. 2023-09 (December 2023) Income Taxes (Topic 740), improvements to Income Tax Disclosures).}

^{32 Tax Subcommittee Hearing: Biden’s Global Tax Surrender Harms American Workers and Our Economy, July 19, 2023 (https://gop-waysandmeans.house.gov/event/39854592/).}

^{33 Sol Picciotto, Fixing or Nixing GloBE, Tax Notes, Sept. 11, 2023 (subscription required).}

^{34 General Explanations of the Administration’s Fiscal Year 2025 Revenue Proposals, Treasury, March 11, 2024 (https://home.treasury.gov/system/files/131/General-Explanations-FY2025.pdf).}

^{35 This effort is largely viewed as being motivated by developing countries that feel they were disenfranchised from the OECD process and want to negotiate a better deal. On Dec. 22, 2023, the U.N. General Assembly adopted (by a vote of 111-46-10) a resolution on the promotion of inclusive and effective international tax cooperation at the United Nations (A/RES/78/230, available at: https://documents.un.org/doc/undoc/gen/n23/431/97/pdf/n2343197.pdf) that would, among other things, establish an intergovernmental committee to draft terms of reference for a U.N. framework convention on international tax cooperation. The work of the committee is expected to be finalized by August 2024. More information about the framework convention, which is contemplated to be a legally binding multilateral instrument and is also referred to as option 2, can be found in the report of the Secretary-General entitled “Promotion of inclusive and effective international tax cooperation at the United Nations” (A/78/235), available here: https://financing.desa.un.org/sites/default/files/2023-08/2314628E.pdf}

^{36 Notice 2023-80, which was issued Dec. 11, 2023, generally provides that as long as the IIR or QDMTT is considered a “final top-up tax,” it may be creditable as long as no amount of the taxpayer’s U.S. federal income tax liability is taken into account in computing the IIR or QDMTT.}

^{37 At least, that is the assumption the Joint Committee on Taxation is making when it scores Pillar Two; Possible Effects of Adopting the OECD’s Pillar Two, Both Wordlwide and in the United States, Joint Committee on Taxation, June 2023 (https://www.finance.senate.gov/imo/media/doc/118-0228b_june_2023.pdf).}

^{38 But see Note 32.}

^{39 Whether certain countries’ planned/adopted GloBE rules qualify as QDMTT, IIR, UTPR (as applicable) is still “to be confirmed” (namely Switzerland, Qatar and Mauritius), so they are not included in the table (although, because Switzerland’s QDMTT does qualify, it is included, just not its IIR and UTPR). Further, the EU allowed certain of its member countries to defer implementation for six years (five EU countries qualify for and have elected deferral, although they are still required to proceed with more limited implementation in the meantime). Infringement proceedings impacting those EU countries that have fallen behind the required implementation began in January.}

^{40 https://www.oecd.org/tax/beps/inclusive-framework-on-beps-composition.pdf}

^{41 Contained in the second tranche of administrative guidance, the so-called Transitional UTPR Safe Harbour essentially provides that the UTPR top-up tax shall be deemed to be zero during 2025 if the ultimate parent entity (UPE) jurisdiction has a nominal statutory tax rate of at least 20% (such that all U.S.-parented multinationals would qualify given the 21% rate).}

^{42 According to Danielle Rolfes, partner-in-charge of KPMG’s Washington National Tax practice, who spoke April 5, 2024 at a conference sponsored by the International Tax Policy Forum and the Institute of International Economic Law entitled “The United States Confronts Pillar Two.”}

^{43 For years, foreign-parented multinationals have had an advantage over U.S.-parented multinationals, and enacting GILTI did not change that. Further, the U.S. tax base will be eroded if QDMTTs lead to an increase in FTCs and erode the GILTI tax base.}

^{44 Note that GILTI does not use financial accounting income as its base, and the changes Treasury is considering making to GILTI to make it Pillar Two compliant (which include calculating it on a country-by-country basis) would not require such a shift. Treasury is also proposing to do away with the qualified business asset investment (QBAI) exemption (so there would be no substance-based carveout) and to get rid of the deduction on foreign-derived intangible income (FDII).}

^{45 According to Fortune’s Global 500 list of the world’s largest corporations by revenue, as of August 2023, 143 of the corporations that made the list were headquartered in China (although many of those are state-owned enterprises (SOEs) that are not publicly traded) and 136 were headquartered in the United States.}

^{46 According to John Samuels, Chair of Global Tax at Blackstone Inc. and, among other things, Chairman of the International Tax Policy Forum, who spoke April 5, 2024 at a conference sponsored by the International Tax Policy Forum and the Institute of International Economic Law entitled “The United States Confronts Pillar Two.”}

^{47 OECD (Dec. 20, 2021), Tax Challenges Arising from the Digitalisation of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two): Inclusive Framework on BEPS, OECD, Paris (https://www.oecd.org/tax/beps/tax-challenges-arising-from-the-digitalisation-of-the-economy-global-anti-base-erosion-model-rules-pillar-two.pdf).}

^{48 The U.K. is somewhat of an outlier on this point, as its implementing legislation effectively states that future guidance from the OECD can be taken into account in interpreting the provisions. CONFIRM}

^{49 OECD (2023), Tax Challenges Arising from the Digitalisation of the Economy – Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two), OECD/G20 Inclusive Framework on BEPS, OECD, Paris, https://www.oecd.org/tax/beps/agreed-administrative-guidance-for-the-pillar-two-globe-rules.pdf.}

^{50 OECD (2023), Tax Challenges Arising from the Digitalisation of the Economy – Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two), July 2023, OECD/G20 Inclusive Framework on BEPS, OECD, Paris, www.oecd.org/tax/beps/administrative-guidance-global-anti-base-erosion-rules-pillar-two-july-2023.pdf.}

^{51 OECD (2023), Tax Challenges Arising from the Digitalisation of the Economy – Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two), December 2023, OECD/G20 Inclusive Framework on BEPS, OECD, Paris, http://www.oecd.org/tax/beps/administrative-guidance-global-anti-base-erosion-rules-pillar-two-december-2023.pdf.}

^{52 Stephanie Soong, Treasury Aiming for Research Credit Fix in Pillar 2 Guidance, Tax Notes, March 20, 2024 (subscription required); Michael Rapoport and Samatha Handler, Yellen Hopeful About Global Minimum Tax Treatment of R&D Credit, Daily Tax Report, March 21, 2024 (subscription required).}

^{53 See the “Adopt the Undertaxed Profits Rule” proposal in Treasury’s General Explanations of the Administration’s Fiscal Year 2023 Revenue Proposals (the so-called Green Book) (https://home.treasury.gov/system/files/131/General-Explanations-FY2023.pdf).}

^{54 Some notable upcoming earnings releases include General Electric and Microsoft (out April 23), Meta (out April 24) and Amazon (out April 25).}

^{55 Jennifer Spang, Ask the National Office: What Pillar Two means for first quarter reporting, PwC, March 20, 2024 (https://viewpoint.pwc.com/dt/us/en/pwc/the_quarter_close/assets/tqcq12024.pdf).}