Cross-border Tax Talks Podcast| PILLAR TWO: DECODING THE G7 STATEMENT | Pat Brown

Wade Sutton (PwC’s Washington National Tax Services - International Tax Services Leader) is joined by Pat Brown, an ITS Partner and Co-Leader of PwC’s Washington National Tax Services practice. Pat previously served as the US Treasury’s Associate International Tax Counsel and has been a frequent guest on the podcast. Wade and Pat take a deeper dive into the future of Pillar Two, focusing on the G7’s ‘side-by-side' agreement. They highlight the historical positions of previous US administrations, why proposed Section 899 was dropped from OBBBA, US dissatisfaction with the lack of accommodations for the US GILTI regime and R&D tax credits, the OECD process and how countries could implement changes, and the potential for simplification including a potential permanent safe harbor. Finally, they look to the future and what may happen next.

Timestamps and Descriptions

01:15: Wade asks Pat about his favorite baseball team’s performance

03:15: Wade asks Pat to provide historical context and explain the US dissatisfaction with Pillar Two

09:00: The complexity of Pillar Two and the treatment of US R&D credits.

10:30: Explanation of proposed Section 899 and its purpose as a retaliatory measure.

13:55: The G7’s role and influence in OECD tax negotiations.

16:55: The process for reaching agreements at the OECD Inclusive Framework.

21:45: The potential timing and retroactivity of the G7 side-by-side agreement’s implementation.

24:35: Can the EU implement the side-by-side agreement via administrative guidance or is a directive needed?

27:30: What is meant by the vague language in the G7 announcement referencing a commitment to ensure any substantial risks that may be identified with respect to the level playing field, or risks of base erosion and profit shifting, are addressed to preserve
the common policy objectives of the side-by-side system.

31:15: Evaluating the US tax system and whether or not there is a base erosion risk.

33:15: Potential for a permanent safe harbor and simplification of Pillar Two.

35:35: Any sense of timing or priority for work on substance-based non-refundable tax credits?

40:05: Potential consequences if the side-by-side agreement is not finalized.