Key Takeaways
- Jurisdictions have begun implementing Pillar Two.
- Developing countries see less benefit from the policy than richer Western nations.
- But not everyone agrees on how the policy’s provisions on tax incentives, competition will affect them.
- After tariff ruling, courts will next look at de minimis rules.
- U.S. looking for common ground on digital tax.
Since the announcement of the side-by-side agreement in January, the United States and Europe are finally on the same page—or at least, reading from the same book—about the Organization for Economic Cooperation and Development’s 15% global minimum tax.
But what about the rest of the world?
While most Western nations are at various stages of implementation, many others have retained some skepticism about whether the minimum tax, also known as Pillar Two, will ultimately help them. This is especially true for developing countries, many of whom have pushed for an alternate agreement at the United Nations.
Aside from complaints about the complexity of the agreement, some have objected to its focus on headquarter jurisdictions over those with markets, natural resources or workers. It also has provisions meant to discourage some types of tax credits that countries use to lure investment—one way that poorer countries have tried to compete for investment.
Opinions on this are not uniform, however.
For instance, the South Centre, a nonprofit advocacy group, claimed in a recent policy brief that Pillar Two and other OECD policies are meant to discourage investments in developing countries, especially in dynamic new industries such as clean energy, semiconductors or artificial intelligence. It advises against participation in the system, and calls for developing countries to make “informed, evidence-based decisions, while considering the benefits of other simpler and more beneficial alternatives.”
But a post from the Inter-American Developmental Bank, a DC-based financial institution serving Latin America and the Caribbean, offers some measured words of praise for Pillar Two, especially changes made in the side-by-side agreement. On its allowance of new substance-based tax incentives, it notes new flexibility to allow “countries to use investment-attracting policies that create a stable and competitive environment without weakening public finances.”
This is a reminder that the developing world—often known as the Global South—doesn’t necessarily speak with one voice on issues of international taxation. While some hope to continue to use credits to decrease the overall level of taxation and attract investment, others protested that the minimum tax wasn’t high enough to truly stop tax competition. Those differing perspectives could play out in the implementation of Pillar Two.
Countries will also be affected by Pillar Two whether or not they choose to participate. The policy’s enforcement tools can be used to penalize companies that operate in jurisdictions which benefit from refusing to adopt the regime. On the other hand, if it does reduce profit-shifting around the world, that could benefit any country currently losing income through base erosion.
It’s a Pillar Two world now—but many are still figuring out how to deal with it.
Noteworthy Items This Week
What could give the administration grounds to do this? It argues that it is using IEEPA differently in the case of the de minimis exemption — relying on IEEPA to suspend the exemption, rather than impose a tariff.
Can Trump use IEEPA to suspend a statutory exemption? It’s a question that is being litigated before the U.S. Court of International Trade in Axle of Dearborn Inc. d/b/a Detroit Axle v. Department of Commerce, No. 1:25-cv-00091 (Ct. Intl. Trade). The plaintiff in that case, a Michigan-based auto parts e-retailer, argues that the administration does not have the authority to suspend the de minimis exemption via IEEPA.
See Eide Bailly's coverage of the Supreme Court's monumental tariff decision here and here.
Treasury to Reassess OECD Digital Tax Project to Find Agreement – Lauren Vella, Bloomberg Tax ($):
“For me a constructive dialogue representing the United States is to first listen,” said Rebecca Burch, deputy assistant secretary for international tax affairs at the Treasury Department. “That we should be leading and listening.”
With Trump’s Tariffs Overturned, Who Gets Refunds?: Explainer – Isabel Gottlieb, Bloomberg Tax ($):
Trump Sued by States Over New Tariffs After Supreme Court Loss – Erik Larson, Bloomberg Tax:
Trump’s proclamation placing a 10% tax on imports as of Feb. 24 is “fatally flawed” and must be overturned, two dozen states said in a lawsuit filed Thursday in the Court of International Trade in Manhattan. Trump has said he plans to increase the levy to 15%.
Thousands of US companies are already seeking refunds for about $170 billion paid under the earlier tariffs that were overturned, which Trump issued under the International Emergency Economic Powers Act, or IEEPA. On Feb. 20, the Supreme Court ruled 6-3 that the president issued those tariffs illegally.
Public Domain Superhero of the Week
Every week, a new character from the Golden Age of Comics, who’s fallen out of use.
This week’s entry: Black Cobra
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Debut Year: 1941
Debut Publication: Dynamic Comics #1
Origin Story: The son of a district attorney who dons his costume to take the law into his own hands.
Superpowers: No superpowers, but he is a skilled fighter with knowledge of the legal system.
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