What the side-by-side approach means for global tax

In this episode of the Tax and Law in Focus podcast, Susannah Streeter speaks with EY tax leaders on what the OECD’s side-by-side approach means for global minimum tax and multinational businesses.

Key takeaways:

Understand what the side-by-side approach changes in global minimum tax
See where complexity is likely to increase for multinational groups
Learn how US policy has shaped the current direction of reform
Understand why scenario planning, data and coordination are now critical

For your convenience, full text transcript of this podcast is also available.

Susannah Streeter

Hello and welcome to the Tax and Law in Focus podcast. I'm your host, Susannah Streeter. Today, we're focusing on what is a big turning point in international tax policy. The OECD's agreement on a side-by-side approach to global minimum tax marks a significant new phase. After all, we have had more than a decade of convergence through BEPS, the Base Erosion and Profit Shifting agreement. Governments have been moving unevenly towards shared standards on transparency, substance, and minimum effective taxation. Now, though, the direction of travel is shifting from one of alignment to coexistence. In this new era, comparable regimes will operate in a parallel negotiated equivalence instead of uniform rules amid a renewed focus on national competitiveness. So, in this podcast, we're going to talk about what this new arrangement is designed to achieve, what's prompted it, and why it matters for multinationals. Plus, we'll discuss where extra complexity will lie, how compliance will evolve, and what tax functions need to do now to stay resilient. To explore all of this, I'm really pleased to say I'm joined by a brilliant panel of global tax experts. But before I introduce them, please remember, conversations during this podcast should not be relied upon as accounting, legal, investment, or other professional advice.

Streeter

Listeners must, of course, consult their own advisors. But now, without further ado, let me welcome Aruna Kalyanam, EY Global in America's Tax Policy Leader. Welcome, Aruna. Where are you talking to me from today?

Aruna Kalyanam

Thanks so much, Susannah. It's great to join you. Greetings from Washington, D.C.

Streeter

Lovely to have you with us. Also, let me welcome Chris Miller, EY Asia Pacific Tax Policy Leader. Chris, where are you today?

Chris Miller

Yeah, hey, Susannah. I'm joining from Down Under, from Perth in Western Australia. It's a pleasure to be here. Pleasure to be here with you.

Streeter

And also Christopher Sanger, EY Global Government Tax Leader. Christopher, where are you?

Chris Sanger

I'm very well, thank you very much. And it's nice to be joining you from the UK, which has the benefit of being in the middle of the time zones, and therefore it's a perfect time for me if it's early for Aruna or late for Chris. So I get all the benefits.

Streeter

Thank you, Christopher. It really is a global podcast today, and so we can dig deep into these pressing issues. So let's set the scene and find out more about what this side-by-side agreement is, and just why it's emerged now. So Christopher, we're moving from convergence to coexistence. Can you explain what's changing?

Sanger

Yeah, absolutely. And I think it's, it's really important to understand the difference between the two, because when we started down this whole route of a global minimum tax, we had a position where all the countries were coming together around a coherent regime that they would all buy into, that would basically mean that wherever you went around the world, you would be subject to the global minimum tax. And that's some really great benefits for the governments because it meant there was none of this first mover disadvantage that normally comes from imposing minimum taxes on your companies in your country, and indeed their subsidiaries. So we had this idea of this consistent convergence, everything happening. Now, there's a big difference when we come into this coexistence part because now we're getting to an environment with the side-by-side rules, which really are another method of seeking to achieve, according to the OECD, the same elements that we have within the global minimum tax. So we've got two different routes, and they need to sit alongside both sides. Now, there is still some element of calling it convergence because, of course, they're all looking at domestic minimum taxes, but they really are some fairly different mechanisms for achieving the same thing.

Sanger

So rather than having a single rulebook that applied to everybody, where if you're a multinational, you would just learn things once, you could apply your knowledge that applied in one country immediately to another country and know that you had a common system. We now have at least at the moment, two different systems which need to be operated by. And if you're a US multinational in the side-by-side, you actually are still operating in both because you've got domestic minimum taxes under the old system and you've got your own system sitting on top. So you've got a really different challenge and a different environment in terms of operations. So that's why we now call it a coexistence rather than a convergence system.

Streeter

Yes, an extra layer of complexity to be sure. But do we still have the 15% minimum largely in place?

Sanger

Well, in the short term, or probably even the medium term, the answer to that is a clear yes. Because if we think about how this has all worked, what the global minimum tax system has encouraged countries to actually operate and introduce their own QDMTTs, their Qualified Domestic Minimum Top-Up Tax. So whatever system you're operating on up above looking down on you, if you've got a domestic minimum tax which is based on the existing system, then you're already within that regime. So in the short term, whether you are headquartered in the US or headquartered elsewhere, it doesn't really matter for an inbound investment perspective. Now, actually, as time develops and we see changes to the DMTs, that's when we will see things— well, if we see those changes, that's when we'll see this develop further. But at least in the short term or the medium term, we're still in a world of domestic minimum taxes and 15%.

Streeter

Okay. Thank you, Christopher. For now, let me bring in Aruna. Aruna, how is this going to affect revenue collection?

Kalyanam

I think there's a basic understanding that the side-by-side agreement really translates to the coexistence of minimum tax systems in the US and in other jurisdictions. So ostensibly, the revenue collected should be the same. It's just a matter of who's collecting it.

Streeter

And you mentioned the United States, of course, that's where you're based, a key area of expertise. To what extent would you say that it's US policy that's really influenced this move?

Kalyanam

Susannah, the short answer would be tremendously. The US influence in this space is tremendous, almost virtually total influence over these developments that have happened with respect to PELOR-2. And I think it's helpful to take just a little bit of a step back and consider the evolution of how we got here. So under the previous administration, there was a real focus on global cooperation and ensuring that, a term that I will use loosely, that corporations are paying a fair amount of tax the world over. So that means not just trying to discourage incorporating and operating in tax havens, but really making sure that a fair amount of tax was collected on global activities, especially seeing the extent to which multinationals and the amount of multinationals and the operations just continue to expand as time goes on. With the election of President Trump in 2024 and assuming office in 2025, the administration really laid out a very different vision for how the U.S. was going to approach not just these multilateral agreements, but also what the philosophy is driving how America and American companies should be treated in a global landscape. So when you think about it, there's real questions of tax sovereignty, which is a term that I think might be a little bit new to people or something that people hadn't considered in a while, which is essentially why should the US have to give up taxing rights to another country?

Went under their systems, they actually had full taxing rights and considered those systems equal. And that a real key part of the driver over here is going back to 2017, the United States underwent a significant tax reform under the Tax Cuts and Jobs Act, which I'll probably refer to as TCJA from here on out. But the TCJA did establish a global minimum tax that would apply to U.S. companies operating in other jurisdictions. And there's a real pushback as to why the U.S. should have been required to conform its GNT to match a newly developed system of GNTs. So at the end of the day, the U.S. really led the effort to drive agreement on a side-by-side arrangement here.

Streeter

And what would you say the benefits of this kind of parallel framework approach are compared to the coordination drive we've had for the last decade? Are there many?

Kalyanam

From the sort of America-first governing philosophy, the benefits are very real, very tangible for U.S. companies. And I think that sort of seems like an easy answer here. I think that means that compliance costs, privacy, things that were really weighing on U.S. companies about what they would have to do to continue to operate in other countries by virtue of just even the existence of the agreement, some of that has been alleviated. But I think that there's some disagreement as to whether or not Pillar 2 was the right way forward. Does this actually create too much of a compliance burden, not just on U.S. companies, but on other large multinational corporations? And you're seeing some of that pushback now as well, even with the side-by-side arrangement. So I think that there are benefits to be derived, certainly for U.S. companies. But I think that under the OECD agreement, you've seen a real push for simplification and sort of coordinated simplification, encouraging nations to go ahead and adopt those simplified rules. So overall, the benefits of this, I think, are going to unfurl over time.

Streeter

Certainly does seem that way. So let me bring in Chris. Now, Arun is talking about how, actually, there could be real benefits for US firms, but what about global firms? How does this create more complexity? What's your take on this?

Miller

Yeah, thanks, Susannah. I think it's a really interesting dynamic to think about, about the additional complexity and burden faced by non-US firms. Obviously, Pillar 2, the global minimum tax, is a hugely complex beast that companies are dealing with and many of our listeners are dealing with in real time currently. You know, the Pillar 2 model rules themselves around 100 pages and a newly created tax base from scratch. But of course, that doesn't tell half the story. Think of the reams, hundreds and hundreds of pages of administrative guidance that sit behind that. So clearly, Pillar 2 in and of itself is a hugely administratively complex animal. I think then the thing to think about is, well, what did the side-by-side package do relative to that starting point of the huge Pillar 2 imposition. And I think for non-US firms, as a starting point, there is no change at this very moment in terms of compliance obligations. So I think from that perspective, from a non-US firm, actually, the establishment of a new coexistence, the avoidance of a path whereby we went down a retaliatory, if you will, regime that was proposed by the US administration. The avoidance of that fairly negative scenario, if you will, I think in a lot of ways is beneficial for businesses outside of the US.
Having said all of that, there's then a medium-term, longer-term consideration for non-US businesses to think about. And that really deals with the fact that now non-US businesses and US businesses alike have to factor in a Pillar 2 side-by-side scenario in all their forward thinking and strategically planning around how different countries are going to change, stick and twist with respect to their respective Pillar 2 implementation. We'll talk a little bit about that further in the discussion around jurisdictional reactions that we might see. And so obviously now businesses really have to bear in mind all of that complexity in their forward-looking decision-making.

Streeter

A lot of complexity for sure. And there could have been even more complexity, couldn't there, Aruna? There was the so-called 899 rule or proposals as part of the one big beautiful bill. Tell me more about that and whether you think it could still be deployed. Is retaliatory tax policy going to pop up again?

Kalyanam

I think it's definitely possible. We live in a world where almost anything's possible. But let me take a quick second and just unpack what 899 is really quickly. When you had the president very early on in his second term issue an executive order that strongly opposed the global deal and indicated that the US would undertake measures to push back on countries that had enacted these so-called discriminatory taxes. Against U.S. companies, you knew that there was a very real threat behind this positioning. Section 899 is a new code section that was kind of conceptually introduced first in 2023 by Republicans in the U.S. House of Representatives, but really was picked up and generally modified this year in the Congress's consideration of the one big beautiful bill that took place last year. What 899 would do essentially is impose additional taxes on the US operations of foreign headquartered companies that are headquartered in countries that have UTPR taxes, that have sort of adopted Pillar 2 and are going to impose these top-up taxes on US companiesThis had very significant, far-reaching consequences if implemented. And I do think the fact that the provision was introduced received an extraordinary amount of attention all over the world. But this wasn't just something that was kind of posted as a filed bill. This is a piece of legislation or a provision that actually passed the United States House of Representatives, which kind of gives great pause. I mean, it made it halfway through the process. In the Senate, the timing of it was such that the G7 was actually able to come to an agreement and with the US Treasury and endorse the negotiations that would then become the side-by-side agreement that we saw very early this year, I think it was by the end of the year, which was their deadline, but really, you're talking about a few days in between. So at the end of the day, 899 was dropped. Is it dead? From my two decades of experience on the Hill, nothing is ever really dead. And I jokingly tell people that it's not really on the table right in front of us, but it's certainly on the floor.

It's more like bringing a nuclear warhead to a knife fight. This had very significant, far-reaching consequences if implemented. And I do think the fact that the provision was introduced received an extraordinary amount of attention all over the world. But this wasn't just something that was kind of posted as a filed bill. This is a piece of legislation or a provision that actually passed the United States House of Representatives, which kind of gives great pause. I mean, it made it halfway through the process. In the Senate, the timing of it was such that the G7 was actually able to come to an agreement and with the US Treasury and endorse the negotiations that would then become the side-by-side agreement that we saw very early this year, I think it was by the end of the year, which was their deadline, but really, you're talking about a few days in between. So at the end of the day, 899 was dropped. Is it dead? From my two decades of experience on the Hill, nothing is ever really dead. And I jokingly tell people that it's not really on the table right in front of us, but it's certainly on the floor.

You can still see it there. But there are some real considerations to think about. And anecdotally, one thing that we heard is that, especially in the United States Senate, which received this provision from the House in their consideration of the overall package. You know, at the end of the day, nobody wanted to see 899 become law. It's extraordinarily disruptive to the economic activities in the U.S., and as you can imagine, if you are the senator of a state that has a large company, a large economic presence from a foreign headquarters company, I don't think you necessarily want to disrupt those jobs, those investments, and things like that. But it's this broader question of did it serve its purpose? Was it enough of a threat to drive this agreement and get there? I think the answer is yes. We got to a side-by-side agreement. But if you were to ask me to be able to use the threat of 899 again, I think you have to show a willingness to shoot the hostage. Frankly, to take this all the way and actually implement this. And knowing that there's like a little bit of a reluctance to actually put this in law, you know, if you want a provision to function as a Sword of Damocles, you've got to have some, um, some oomph behind the threat that it's going to be out there.

To me, that's a real question, especially given the sort of anecdotal reluctance to actually include this in a package that was going to make law. But I think that it's certainly something that's still out there.

Streeter

Okay. Aruna, thank you. So we have this side-by-side approach now, which has been introduced. Chris, do you think it means that fragmentation will now just accelerate? And if so, which jurisdictions are going to, you think, adjust their regimes as a consequence?

Miller

Yeah, I think it's a really interesting question, Susannah . I think from my perspective, the jury is still out in terms of identifying the pathway forward in terms of a more divergent or a more convergent global scenario. I think you can certainly canvas opinions on both sides of that debate if you ask a few people around the place. I think certainly there are a few maybe cohorts of countries that you can look at and break down the discussion within those cohorts, thinking about the different incentives that might lead them to stay or to go, so to speak. I think certainly, and putting my Asia-Pacific hat on a little bit here, but certainly some comparisons outside of Asia-Pacific. If we think of some jurisdictions in Asia-Pacific that have historically been quite active in competing to attract foreign direct investment through taxation initiatives, you think of Singapore, perhaps Hong Kong and other markets in Asia-Pacific. Those jurisdictions, at least to this point, have certainly reaffirmed their commitment to the implementation of Pillar 2. So I think it was perceived in many forums that those jurisdictions probably had the most to gain in terms of reevaluating their continued commitment to Pillar 2 in terms of, well, if they switch off, suddenly they're very attractive, in particular to the US, being to US foreign direct investment, being quote unquote side by side.

And so those jurisdictions had a lot to gain. They've so far, as I said, recommitted. We'll see whether that recommitment lasts in the longer term, but for sure, that's where those jurisdictions stand. And I think, as I mentioned, that I've given a bit of an Asia-Pacific perspective, but that's true within Europe and other locations as well. I think another cohort to think about amongst this discussion, and a cohort that loomed large in a lot of the negotiations, is China and perhaps India, and a number of other jurisdictions, large economies that to date haven't implemented Pillar 2. And so the question is whether they might contemplate under this new side-by-side package, whether they might contemplate implementing laws under their domestic legislation that mirror roughly what the US already has in place in terms of its GILTI (Global Intangible Low-Taxed Income) and CAMT (Corporate Alternative Minimum Tax), and in doing so put themselves effectively side by side alongside the US. Now time will tell whether those jurisdictions seek to adopt that type of approach, but one thing from my perspective that's really interesting about the way that the side by side package has been crafted is that countries like China that I mentioned certainly have an imperative now to do something in the sense that any undertaxed profits in China of China-headquartered groups under the current guidelines or design of the new side-by-side package, other jurisdictions will actually impose their UTPR and apply top-up tax to undertaxed profits in that headquarter location.

So there's a really good motivation for China or India or others to actually say, "Hey, I actually want to implement a domestic minimum tax in accordance with Pillar 2 if they don't go all the way to trying to be side by side. So that's a really interesting one. And again, potentially one that actually draws together or draws apart. We'll have to see how that all plays out. And I think finally, the other maybe third group that I think about here, and Chris Sanger touched upon it a little bit earlier, is jurisdictions that might seek to adapt their rules around the edges and test how far they can go in terms of a qualified regime. And that's not only in terms of the design of the rules, but even the administration of the rules. And so that's going to be interesting to see how much flex remains in the system or how much the knot tightens going forward as the OECD does its thing in administering the system.

Streeter

Okay, well, let me bring in Chris Sanger now and focus on how this broad change in policy and what it's going to mean in practice. So Chris, when it comes to operational reality, what do you think the biggest impacts are going to be of this side-by-side approach? How might it affect duplicated reporting, for example?

Sanger

Well, I mean, first of all, what it doesn't mean is that US multinationals are wholly outside of the complexity that is inherent in Pillar 2. And that's because we've got all these domestic minimum taxes, which, as their name suggests, kind of Well, they're domestic taxes, so they're not technically within Pillar 2, they're just recognized favorably by the Pillar 2 income inclusion rules and the UTPR. So they still exist even once we get through the side-by-side agreement. So, multinationals with US subsidiaries in those countries will be paying taxes under the DMT. So they have to understand those rules as well as everything else. And of course, they also have to understand their US rules, which actually gave rise to the side-by-side, but they needed to do that before. So I don't think there's any additional complexity for the US multinational, at least in the short term. They've got their existing regime, and they've got the domestic minimum tax, but there is a real upside potentially in the medium-term future, as and when we see, potentially when we see countries changing their domestic minimum taxes or even removing them. In that case, you get a real opportunity for a US multinational because it just has to understand the US system.

Whereas if you think every other country working in the world is understanding the system designed by the Inclusive Framework, the 140+ members, and what they've really got there is a system that has the wants of every single member negotiated, admittedly, but included in the system. That's bound to be inherently complex. Once you move into a side-by-side, you've got the wants of only one country, in this case, the US. But only one country determines all the details and the complexities you get there. Now, of course, many people will point to the US system and say, " Actually, there's a lot of complexity built into the US system. So, actually, is there that much distinction between the income inclusion rule complexity in the US system? Well, I won't comment on that as a non-US practitioner, but I would argue that once you get to other countries that maybe are adopting side by side, you could see a significant administrative saving if you were actually in an environment where you had just your headquarters regime applying to it, and you weren't operating in the DMTs. But with the DMTs at the moment, you have got that duality. But it's a duality facing, I think, everyone, whether you're in side-by-side or not.

Streeter

Okay, Chris Sanger, thank you very much. Chris Miller, anything to add there on the compliance burden and how it may change and diverge by headquarters location and footprint?

Miller

Yeah, well, I think certainly that the compliance burden, as we're seeing in real time, is massive on groups. You know, folks are dealing with this in real time as we speak. I think for non-US groups, certainly we're going to see significant divergence in terms of compliance obligations depending on the extent to which those jurisdictions adapt their rules. And thinking about, as I mentioned earlier, jurisdictions like China that may or may not adapt their domestic rules to perhaps act into a side-by-side regime. I think these are all moving pieces that are going to be really meaningful in terms of the compliance obligation of non-US groups. I think Chris covered it really well earlier in terms of the way that the regime will work with respect to US groups, and clearly those being subject to a very different set of compliance circumstances.

Streeter

So we're clearly in a real shifting sands environment. Aruna, what is all of this going to mean for planning cycles? How could all of this uncertainty show up?

Kalyanam

You know, Susannah, I really think that probably key to what's going on right now is this idea of companies needing to, at least at a minimum for 2026 and 2027, to really sort of focus on shorter timeframes and shorter temporal views simply because there's a lot of activity in all over the country that policymakers are grappling with how exactly to implement what side-by-side will mean for their own tax system. And, you know, I spend a lot of my time with the tax writers in the United States, understanding how the so-called sausage is made. It's made differently in every country, and sometimes there's more deliberation, less deliberation, more swiftness. There are calendars that'll govern this, and so depending on whether you are operating in a number of jurisdictions, I think that you're really just in a period of navigating some choppy waters for the time being. I do think that there's going to be some clarity that emerges as you see certain successful adoptions or successful implementations of policies that can accommodate a side-by-side agreement, and of course, a domestic system. But I do think that what's going to be more credible, critical right now, is being vigilant this year. And the other side of what I think companies are going to have to do in terms of their planning is really focus on engagement. I think that, again, given that the systems are quite different country by country, it's going to be critical to ensure that policymakers are well aware of the circumstances of your business, your operations, and how to ensure that your investments are mutually successful and secure.

Streeter

Yeah, and I'm sure, Chris Miller, you're very vigilant, as Haroun is saying. We all have to be in this environment. So what kind of changes do you perceive ahead for controversy and dispute resolution?

Miller

Yeah, well, I think controversy and dispute resolution is a really interesting area with respect to Pillar 2 because, you know, we're undoubtedly going to see a lot of controversy coming down the line, as governments, we know we're under fiscal pressure in this moment. We know Pillar 2 is unlikely to deliver the full extent of fiscal benefits that some countries were banking on before the side-by-side regime. So I think we can anticipate a significant amount of government administrative enforcement. Of course, as we know very well, unlike Pillar 1 or the intended Pillar 1, we'll see where that goes in the future. But unlike Pillar 1, there is no multilateral convention or treaty that sits behind and links together the relevant enactments of Pillar 2 regimes in various countries. And so with that, we don't have any map, we don't have any multilateral dispute resolution. And so taxpayers are really activated around this, and it's really interesting to see some developments. The OECD, of course, has committed to delivering a solution in this space. And there has been the so-called Amsterdam Dialogue, which has really been focused on this area, but to date, there have been no real tangible outcomes.

Now that all sorts of things stand as they did before the side-by-side package. Now, of course, the side-by-side package with the US regime having implemented, of course, different rules, a different tax base, a different set of provisions, of course, it's very hard for the OECD or the inclusive framework to introduce a regime for controversy resolution that can sit across those two divergent regimes. So I think it's going to be really challenging how it fits together with respect to those that remain committed to Pillar 2 but have potentially diverging implementation. I think that's going to be really interesting to see. Over time. And I think the OECD already has a lot on its plate. So we'll see how these matters continue to evolve.

Streeter

We shall do indeed. Well, let me bring you back in, Chris Sanger. It sounds like good management and real-time analysis of data is going to be absolutely crucial going forward. Would you say this is a theme that will run through every scenario?

Sanger

Absolutely. I mean, I think if we look at the complexity we're talking about, the one thing that allows you to work out what you're doing is having real-time data at your fingertips. And also not just that, but knowing where you think the data is going to move. So what do the future ambitions of the group look like? How will that affect us? The sheer complexity we have within this means that tax becomes an even more important player at the table when trying to decide what the country's and what the multinational's next view is going to be. If you don't understand this, there are plenty of traps for the unwary. And here the tax director really needs to be able to get that message across, understand that, and in order to do that, he or she needs to know what's going to happen right up front and be able to play that into the board decisions as it's working its way through. If I look for anything good as a result of this, it has really enhanced the role of the tax director overall.

Streeter

The tax director, though, needs to be supported, don't they? How do you then ensure that the systems are robust just enough to do this in the new age of uncertainty? Aruna, let me bring you in. Do you think tax teams need to undertake some kind of change to operational models, for example, to give the tax director all of the support needed?

Kalyanam

Yeah, that's a great question, honestly, Susannah. At the end of the day, there are a lot of different geopolitical considerations that are driving an increased role or expanded role for tax directors. But also the need to hold hands with other financial officers in that space. I like to think about how tax and trade are really moving together at the same time. But the best way to sort of be able to act quickly over here is to be prepared, frankly. And that means ensuring that there is really a lot of awareness and scenario planning, the things that Chris talked about. And I think that companies that are investing in that scenario planning, in that engagement that I talked about before, those are going to be the ones that are best prepared to make adjustments as policies are more calcified and coming down the line. So again, I really do feel like '26 and '27 are kind of weird years, is the best way to put it. But, you know, at the end of the day, every guidebook is going to vary a little bit. So you really want to ensure that you have looked through, analyzed, and thought of all the possible outcomes and had the right people in place to try to get those outcomes in a place that's most positive for your business.

Streeter

Absolutely. So, talking about scenario planning, Chris Miller, do you think it's really shot up the priority list?

Miller

Yeah, I really do. I made the observation in some discussions recently that I've never heard the term no regrets planning. So much in my life as I have in the last 3 to 6 months. And I think, you know, that's true across many aspects of tax policy, you know, Pillar 2, but many others. And I think this is really a critical area for businesses to be focused on. So, not only in terms of projecting the future of Pillar 2 and where we think jurisdictions will go in terms of their enactment in reaction to the side-by-side regime, but certainly in terms of M&A activity, we're seeing so much business focus in M&A around Pillar 2 as well. So I think we're going to see a lot of scenario planning and modelling in terms of the other aspect that I think is really important, not only in terms of the Pillar 2 itself and who will implement and who will turn off or adapt in various ways, but of course there's so many knock-on effects that Pillar 2 has in terms of the way jurisdictions are administrating their domestic law. Think about tax incentives and the side-by-side package; of course, it includes significant changes to the way that qualifying tax incentive regimes are defined.

So, so much to be done around scenario planning of changes to incentive regimes. And don't forget, of course, the potential legal challenge to the UTPR regime itself that's working its way through the courts, that has the potential to change a lot of things. So all these are just various aspects that businesses need to be mindful of in terms of understanding the implications of their existing business model, future business model transactions, et cetera.

Streeter

And Chris Sanger, you talked just now about how much more important all the tax directors become right at the heart of organizations. But do you think we're also going to see more integration and alignment right across departments? To ensure success in this changing environment.

Sanger

That's right. I mean, the old idea that the tax department was an island that could sit there on its own and actually, at the end of the year, take some of the data from the rest of the system and produce a tax return, probably type it out or print it out and send it off to the taxman, that time is just completely gone. And particularly in this kind of environment, we're in a new, we're in a new world. So you absolutely need far greater integration and alignment across all departments if you're going to go and manage in a side-by-side Pillar 2 regime. So yes, you've got tax, you've got finance, you've got legal, all of those ones that we're used to dealing with. I mean, they are essential. I mean, they were always essential before, but they have become even more important. But you've now got the added benefits and/or added challenges, if you like, managing systems which are giving you that data as quickly as you can and getting that to you so you can make those decisions. Ideally, you're making the understanding of the position before you get to year-end. So you can do things that can identify when problems are there and what's going to happen in advance.

Now, that's a real challenge for departments that have been, if you like, acting almost looking in the rearview mirror. Here we are having to look ahead and do that. And of course, you've also got not just the need to manage your central team, but also you've got local teams and what local teams do will impact the overall global position. So you're managing lots of different parts, and you've got to make sure that all of those parts are working together and making sure that everything fits together. And actually, overall, if you can get this to work, there are some real benefits that come from this because you're getting a much greater visibility, you're getting much more integration. Whilst there's a lot of effort involved in this, there are some real plus-sides that come from it, not necessarily from the tax, but actually from the integration itself.

Streeter

Yeah, and as well as being a really good juggler and puzzle solver, what other key skills will successful tax leaders need in this environment, Chris?

Sanger

Well, I'm tempted to say they need to be a magician, but if we're getting away from the idea of magic and you're dealing with what you've actually got, there are some key things you really need to have. Of course, you need to have the kind of detailed technical knowledge to be able to understand where those risks are coming from and be sure that your teams are bringing you all the challenges. You've also got to have the ability to operate across what is a very complex and still a pretty ambiguous set of rules. And those rules are going to be changing even as we go along. We see so much more guidance coming out. We know there's more to come. You've got to be able to judge what is actually going to change in the future, what you need to know, what you don't need to know and also keep aware of the things that are likely to be coming around, around the corner and what the changes are going to be there. At the end of the day, you've still got to maintain your commercial and strategic mindset to be able to understand what really matters for your organization.

There is so much complexity in here that if you want to, if you're trying to keep tabs on all of them, you won't be able to prioritize the right thing. So keeping that commercial one, and as we said before, I've said before, data, data, data. This is what is right at the heart of all of this. So if you're managing to do all of that, you manage to keep the people with you, managing to do the change management as well, you're governing this whole kind of process, and you're engaging both externally with the market, with the decision makers that are there, and internally, you've got a pretty big challenge as the tax director. So maybe magician isn't quite the right word, but a master of many skills, not just one.

Streeter

So clearly there's a lot on, it can be quite daunting, but Chris Miller, let me bring you in. How would you assess the situation that tax leaders find themselves in right now? How should they view it?

Miller

Yeah, well, I think a lot has been made of the side-by-side package and perhaps, you know, the outcome achieved by the Inclusive Framework, the respective winners and losers, and whether this is a good deal for respective countries and for business. I think one thing that I would share on that topic is that, regardless of how you look at it in terms of winners and losers, etc., I think it's really a relatively tidy outcome that the inclusive framework has managed to achieve. I think in the lead-up to the package coming out, there was a lot of discussion around the perceived level playing field issues that European countries, in particular, were quite concerned about. There was also a lot of discussion, and we touched upon it earlier around how China, India and others would react to the package. And I think as far as we can tell, the package itself deals with those issues quite tidily in a way, and in fact, in a lot of ways actually encourages certain countries to consider their commitment to Pillar 2 and to adopt some of the Pillar 2 mechanisms. So I think from that perspective, it really stabilizes to some extent the Pillar 2 system. Whether it stabilizes in the longer term, we have to wait and see. But I do see that the businesses should see this Pillar 2 solution as a relatively tidy and stabilizing solution.

Streeter

Okay, Chris. And let me give the last word to Aruna. Clearly, some kind of internal guidebook might be needed to help bring leaders along through these changes. To what extent would you say communication is absolutely crucial here? Some kind of guidebook to follow, and to make sure that everybody in the organization is on board.

Kalyanam

You know, Susannah , I think I'd like to pick up a little bit on my wonderful colleague Chris Sanger, who really laid out how all of these functions are going to work together. Right. And there's got to be an awareness of sort of the magic show and all of the pieces that are playing into it. But really, what that takes is devoting intention to building connective tissue between these functions. And that connective tissue isn't just the human capital. It's ensuring that data flows are accurate, clean, and timely, and really operating in a way to maximize how these different teams can work together and really advance and get ahead of what's going on. Is it going to be complex? Absolutely. This is like the kind of like a prime example of building the plane while you're flying the plane. Not a single company has the benefit of sitting on the sidelines while waiting for all of this to get sorted out. So I think that communication really is going to be at the heart of all of this, right? When you're talking about the multinational presence of these companies, you have to have all of your offices in regular conversation and consultation, and ensure that no single part is stepping forward without the awareness of the other parts.

So, a period of certain complexity for sure, but I think that as Chris Miller sort of intimated, there is a way to sort of take this side-by-side agreement and really view this with positive outcomes and positive outlooks in the years to come.

Streeter

Fantastic. Well, thank you. I'm very glad to end this podcast on a glass-half-full rather than a glass-half-empty attitude. It's been great to have you all with me. Thank you.
Fantastic. Well, thank you. I'm very glad to end this podcast on a glass-half-full rather than a glass-half-empty attitude. It's been great to have you all with me. Thank you.

Miller

Thank you.

Sanger

Thank you.

Kalyanam

Thank you, Susannah.

Streeter

It really is clear that the next chapter of global tax reform is less about a single destination and certainly more about managing differences. Before we go, though, a quick note from the EY team. The views of third parties in this podcast are not necessarily those of the global EY organization or its member firms and should be considered in the context of the time in which they were made. I'm Susannah Streeter. I hope you'll join me again for the next edition of Tax Law in Focus. EY, shaping the future with confidence.

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Susannah Streeter

Senior Investments & Markets Analyst, Hargreaves Lansdown, UK

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Episode 25

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What the side-by-side approach means for global tax

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Susannah Streeter

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