Tax News & Views International Weekly: OECD's Extra Work

When the Organization for Economic Cooperation and Development released the details for the “side-by-side” agreement this January, it marked the culmination of months of work fine-tuning the 15% global minimum tax.

But, that doesn’t mean work on the tax, also known as Pillar Two, is finished. The agreement will require several more design tweaks which the OECD has yet to fully flesh out, including safe harbors to try to make it workable. And, in addition, there were several previously announced Pillar Two-related projects which had been put on the backburner while the side-by-side agreement was being negotiated.

The OECD’s Secretary-General Report to the G20 said it was currently working on several projects that relate to specific industries. One of those is an interesting issue relevant to any industry involved in transportation, or with transient workers who are likely to move from jurisdiction to jurisdiction in a given year–what the OECD has called “mobile assets.”

These industries could face some uncertainties with Pillar Two’s “substance-based income exclusion,” the carveout meant to ensure that the minimum tax mainly applies to intangible profits. In the Pillar Two calculations, companies receive a reduction in income—making their effective tax rate larger–based on the amount of “substance” in the country, including depreciable, tangible assets and workforce. The rationale is that the larger those factors, the less likely that income in that jurisdiction is involved in profit-shifting.

But in today’s online, post-Covid economy, it’s not always easy to pin down those factors. That’s especially true in industries which have traditionally involved a lot of travel. There have always been contentious issues surrounding the taxation of shipping companies and cruise lines, given their unique nature.

Aside from that tricky issue, the OECD report also says that discussions are underway about how to treat investment vehicles (especially for real estate), as well as countries experiencing hyper-inflation. In the latter case, some taxpayers have expressed concerns that when countries experience wild shifts in currency value—such as Argentina—it could skew the system’s effective tax rate calculation.

All of these issues are still outstanding because they don’t have simple, easy answers that satisfy everyone. And these details will be crucial to whether or not the system works.

Noteworthy Items This Week

Liberty Global $110 Million Tax Plan Fails Substance Test – John Woolley, Daniel Seiden and David Schultz, Bloomberg Tax ($):

The economic substance doctrine is applicable to Liberty Global’s restructure and fatal to its associated tax deduction claim because several of its underlying transactions weren’t economically meaningful outside of their intended tax benefits, Judge Michael R. Murphy of the US Court of Appeals for the Tenth Circuit said Tuesday.

The doctrine, codified under IRC Section 7701, allows a business to reap the tax benefits of a transaction only if it served some purpose besides reducing tax liability and caused some change in the company’s economic position. A Colorado federal judge applied the doctrine to ignore transactions Liberty Global undertook to exploit a loophole in the 2017 GOP tax law, prompting the company to appeal.

3 Key Questions On Trump's Pharma Tariffs – Dylan Moroses, Law360 Tax Authority ($):

President Donald Trump recently announced 100% tariffs on certain imported pharmaceutical products, with opportunities for drug companies to lower their tariff rates to zero, but questions remain about the requirements for preferential treatment and abilities to administer the regime.

On April 2, Trump ordered tariffs on imported pharmaceuticals under Section 232 of the Trade Expansion Act to begin in 120 days for the largest multinational corporations, and in 180 days for smaller businesses.

The law gives the president power to impose tariffs on imports deemed to pose a national security threat following an investigation by the U.S. Department of Commerce's Bureau of Industry and Security.

Global Tax Leaders Aiming for Tax Certainty Across the Board – Chandra Wallace, Tax Notes ($):

Officials from tax agencies in Italy, Ukraine, and the United Kingdom and from the OECD acknowledged the need for tax certainty and laid out actions they have planned or implemented to provide it. They were speaking April 17 at the American Bar Association Section of Taxation's U.S. and Europe Tax Practice Trends conference in Rome.

“On a macro level, at the moment, there is uncertainty globally in the economic system,” said Stuart Gregory, deputy director for corporate tax at HM Treasury in the United Kingdom. “I think where we are at the moment is trying to address that, trying to come towards finding certainty, trying to find simplification opportunities.”

IRS Revives Commensurate-With-Income Standard in Transfer Pricing – Gregory Ossi, Bloomberg Tax:

When Congress enacted the commensurate-with-income, or CWI, standard in 1986, international tax practitioners and foreign tax officials were concerned that the new standard would lead to massive “super-royalty” income allocations to US companies under §482. In practice, however, the standard was rarely invoked by the IRS to justify audit adjustments. Instead, disputes in the §482 field were addressed primarily by economic experts using conventional tools—generally applicable transfer pricing methods—without resorting to CWI.

This dynamic is now changing. Recent (non-precedential) guidance from IRS counsel has retracted the IRS’ long-standing position that sought to reconcile CWI with the arm’s length standard. And the IRS is deploying this new position in practice: In September 2025, the IRS issued a Notice of Deficiency to Meta Platforms asserting billions of dollars of CWI periodic adjustments, which Meta is challenging in the Tax Court.

Carrots and Sticks: How Hungary Taught a Generation to Pay Taxes – Roland Papp, Tax Notes ($):

A rapid transition from socialism to capitalism left Hungary with a thriving grey economy and rampant tax avoidance. A few decades later, however, the country has one of the lowest VAT gaps in the EU.

Carrots, sticks, and fear of thy neighbor’s judgment may have played a role.

Hungarian society didn’t learn about modern taxes until the final years of the socialist system. Except for a small segment of self-employed individuals, almost everyone worked for the state or a state-owned company then. VAT and personal income taxes weren’t introduced until 1988.

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: Zippo

Debut Year: 1943

Debut Publication: Clue Comics #1

Origin Story: A private investigator, he decided to fight crime in costume using his own invention for an edge.

Superpowers: His foot-wheels give him speed, and can also work as a circular buzz-saw.

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