Report on recent US international tax developments – 23 December 2021

On 19 December, United States (US) Senator Joe Manchin said on a Sunday morning news show that he will not support the proposed Build Back Better Act (BBBA), saying: “I cannot vote to continue with this piece of legislation. I just can't.… This is a no on this legislation." In a “Dear Colleague” letter that followed Senator Manchin’s announcement, Senate Majority Leader Chuck Schumer said the Senate will vote on a “modified version” of the House-passed BBBA early in the new year “so that every Member of this body has the opportunity to make their position known on the Senate floor, not just on television.” The Majority Leader also indicated that the Senate will “keep voting until we get something done.” The Majority Leader’s plan to hold a vote on a “modified version” of the BBBA apparently indicates Democrats will try to strip out certain provisions to win Senator Manchin’s vote in favor of the bill.

The Organisation for Economic Co-operation and Development (OECD) on 20 December released the eagerly awaited Model Rules on the Pillar Two Global Minimum Tax, as approved by the G20/OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS). The Model Rules cover the scope and mechanics of the Income Inclusion Rule and the Undertaxed Payments Rule, collectively referred to as the Global Anti-Base Erosion (GloBE) rules. Together with the Model Rules, the OECD also released a summary of the rules (The Pillar Two Model Rules in a Nutshell), an overview of the key operating provisions of the GloBE rules (Fact Sheets) and a Frequently Asked Questions document.

The OECD press release indicates that it expects to release the Commentary relating to the Model Rules and to address the interaction with the US Global Intangible Low-Taxed Income (GILTI) rules in early 2022. In addition, the Inclusive Framework is developing the model treaty provision for the Subject to Tax Rule, which is the third element of the Pillar Two global minimum tax framework, and a multilateral instrument for its implementation, which the OECD expects to release in the early part of 2022 with a public consultation event on it to be held in March 2022. Finally, the OECD noted the work to be done on development of an implementation framework addressing administration, compliance and coordination matters related to Pillar Two and announced that a public consultation event on the implementation framework will be held in February 2022.

The Model Rules provide a substantial update to the Pillar Two Blueprint released in October 2020. Implementation of the Model Rules will lead to significant changes to the overall international tax rules under which businesses operate and will introduce new filing obligations that will require gathering additional data and adaption of companies’ internal processes and systems.

Companies need to evaluate the potential impact of the proposed global tax changes and monitor activity in relevant countries related to the implementation of new rules through changes in domestic tax rules and bilateral and multilateral agreements, especially given the very ambitious implementation timeline. In particular, companies should monitor developments in the US with respect to the GILTI rules as well as the announced plans for implementation of Pillar Two in the European Union (EU) through an EU Directive.

An EY Global Tax Alert provides details. The Model Rules will be the focus of the upcoming EY Global Thought Center Webcast BEPS 2.0: Focus on Pillar Two on 12 January 2022. Click here to register for the webcast.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United States), International Tax and Transaction Services, Washington, DC
  • Arlene Fitzpatrick
  • Joshua Ruland

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.