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U.S. Joint Committee on Taxation Analysis Highlights Uncertainty of Pillar Two Impact

The U.S. Joint Committee on Taxation has released commentary regarding the potential effects of worldwide adoption of Pillar Two. Read on for more.
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On June 19, 2023, the U.S. Joint Committee on Taxation released commentary (the JCT Commentary) regarding the potential effects of worldwide adoption of the Global Anti-Base Erosion model rules (Pillar Two) developed by the Organisation for Economic Co-operation and Development (OECD). The Pillar Two rules developed by the OECD propose a system of global taxation based on financial accounts applied using a minimum rate of 15% (which is set to rise to 17% by 2026) on a country-by-country basis. These rules are designed to target multinational enterprise groups (MNE Groups) with average annual global revenues of at least 750 million EUR.

By design, the Pillar Two rules are expected to raise worldwide effective tax rates by using charging provisions like:

  1. Qualified Domestic Minimum Top-Up Tax (QDMTT): A minimum tax that is imposed by the domestic law of a jurisdiction that computes its own top-up tax following the Pillar Two rules;
  2. Income Inclusion Rule (IIR): A minimum that imposes top-up tax at the highest level of an MNE Group with respect to low-taxed income at its constituent entities; and
  3. Undertaxed Profits Rule (UTPR): A rule that allows a jurisdiction to deny deductions in its own jurisdiction to top up any low-taxed jurisdictions of an MNE Group not brought into charge under the IIR or QDMTT.

As of the current date, multiple jurisdictions have already enacted Pillar Two legislation or have agreed to enact Pillar Two legislation within the next following months.

Recent Guidance

The JCT Commentary specifies that the implementation of Pillar Two will affect the current U.S. federal tax system by taxing foreign source income that would otherwise be taxed by the U.S. and U.S. source income, regardless of whether an MNE is U.S. parented or foreign parented. In so doing, the JCT notes that the revenue impact to the U.S. Department of the Treasury (Treasury) as a result of enacting the Pillar Two rules carries significant uncertainty. This assertion is highlighted in the JCT Commentary through a revenue projection range that predicts a revenue loss of approximately 174.5 billion USD up to a revenue gain of up to approximately 224.2 billion USD over a 10-year period. The revenue projections released in the JCT Commentary were formulated using a variety of assumptions, e.g., the ordering of QDMTTs, IIRs, UTPRs, and other global taxes, and five forecasting scenarios that contemplate variations of the U.S. and the rest of the world adopting the Pillar Two rules by 2025.


The JCT Commentary is significant because it not only confirms the fact that Pillar Two is expected to affect U.S. multinationals regardless of whether the U.S. enacts the Pillar Two rules, but it also represents one of the first formal commentaries released by the U.S. regarding implementation of Pillar Two and its potential budgetary impacts on the U.S. federal government. While the impact to Treasury is highly uncertain at this point, it is largely expected that the global enactment of Pillar Two will result in more administrative costs to MNE Groups with average annual global revenues of at least 750 million EUR. To comply with the Pillar Two rules, Forvis Mazars recommends that affected taxpayers adopt internal protocols to evaluate their internal tax function to confirm that Pillar Two provision and compliance requirements can be met.

If you have any questions or need assistance with your Pillar Two needs, please reach out to a professional at Forvis Mazars or use the Contact Us form below.

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