BEPS 2.0 and US multinationals: Navigating the potential impact of Pillar Two provisions
Whether or how US policymakers might align US tax law with the Organisation for Economic Co-operation and Development (OECD)/G20’s global BEPS 2.0 rules remains to be seen, but, while the issue is being debated, businesses cannot afford to sit on the sidelines. Countries outside of the US have enacted, and continue to enact, local legislation implementing Pillar Two provisions. Right now, US multinational entities (MNEs) need to be modeling out the potential impacts, identifying actions they need to take, and engaging with US policymakers to explain how these rules will affect both their industry and operations.
A report by the EY Quantitative Economics and Statistics (QUEST) practice has found that, even if the US does not adopt the OECD/G20 BEPS 2.0 Pillar Two rules, widespread adoption by other jurisdictions would increase the corporate tax liability of in-scope US MNEs with operations both inside and outside the United States by 18%. It could also have significant effects on the US economy, with the potential to reduce domestic MNE jobs by roughly 370,000 and annual domestic MNE investment by almost $22 billion, according to the QUEST report.
Although the US path on BEPS 2.0 Pillar Two is unclear, many other jurisdictions, including most EU members, have moved forward incorporating Pillar Two into their tax laws. Because many MNEs will begin feeling the impact of these rules in 2024, they will want to monitor and engage in the BEPS 2.0 policy debate as it continues in the US.
US international tax policy considerations
The Biden Administration has supported the BEPS 2.0 project, but the US stance on adopting Pillar Two is dependent on the political climate and will be driven in large part by the outcome of the 2024 elections. If Republicans win the presidency or take control of the Senate in 2024, it is unlikely that there will be an appetite to adopt legislation implementing BEPS 2.0.
Complicating matters, the US already has two minimum tax regimes — the global intangible low-taxed income (GILTI) regime and the corporate alternative minimum tax (CAMT) — which both have some key differences from the Pillar Two global minimum tax.
So, will the US continue to go its own way? Will it embrace the Pillar Two rules? Or will it aim for some sort of compromise between the two? The answers may become clearer after the 2024 elections.
Engaging on the issues
This year is a major election year in the US, with both presidential and congressional elections on the calendar. As policies are rolled out during the year, MNEs will want to work with their advisors to identify where the proposals may present opportunities and challenges.
MNEs will also want to be ready to engage in discussions with lawmakers on how their operations may be impacted by Pillar Two. As part of these conversations, they will want to address how any proposed changes could fit within broader US tax policy goals.
Wherever the US path on BEPS 2.0 may lead, MNEs that act sooner to understand and respond will be better prepared for the journey. Conducting modeling, scenario planning and impact assessments can help inform current and future decisions. MNEs should not miss this opportunity to engage and have their issues be part of the conversation.
