July 30, 2024 • 33 mins
The global tax deal and Pillar Two are shaking up the tax landscape worldwide, introducing a web of complexity and confusion. Today, we untangle the key aspects of these proposals, diving into the latest updates, compliance hurdles, and their ripple effects on industries and smaller nations.
Join Daniel Bunn, President & CEO of the Tax Foundation, and Senior Economist Alan Cole, as they sit down with Kyle Hulehan to explore what the future holds for global taxation and what it means for the United States.
Links:
https://taxfoundation.org/blog/global-tax-agreement/
https://taxfoundation.org/blog/pillar-two-flaw/
https://taxfoundation.org/taxedu/glossary/oecd-pillar-2-global-minimum-tax/
Follow us!
https://twitter.com/TaxFoundation
https://twitter.com/deductionpod
Support the show
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Kyle Hulehan (00:00):
The global tax deal and pillar two are shaking
up the tax landscape worldwide.
Introducing a web of complexityand confusion.
Today, we untangled the keyaspects of these proposals
diving into the latest updates,compliance hurdles and their
ripple effects on industries andsmaller nations.
Hello and welcome to thededuction, a tax foundation
(00:21):
podcast.
I'm your host Kyle.
And today we brought up the bigguns for a large and complex
topic.
We're joined by Daniel Bunn,president and CEO of tax
foundation and Alan Cole, senioreconomist here.
At the tax foundation gentlemen,it's good to have you both in
the show today And i'm justgoing to set the stage real
quick for our listeners We'retalking about the global tax
(00:43):
deal and we're talking aboutpillar two today These are you
know, very complex topics, whichis why we have two of the best
on here today but before we getinto that, I just want to you
know, take this moment to get aquick update from daniel he's a
busy man.
He's got a packed schedule.
He's always moving around.
He's got a lot going on And I'mjust wondering, what have you
been working on?
What have you been engaging withlately?
(01:05):
and where have you been takingthe tax foundations message?
Daniel Bunn (01:08):
Yeah.
Thanks so much for having me onthe podcast, Kyle.
it's been a busy time.
at the federal level inWashington DC, we're preparing
for what some people havecalled,tax Superbowl or
taxmageddon, depending on whichway you look at it.
A lot of tax policy on thetable, at the U S federal level
in 2025.
but we've also recently launchedtax foundation Europe.
(01:29):
And I was in Europe last weekwith meetings, with policy
makers.
in London and Budapest andlooking at opportunities to
promote, sound tax policy,around the world.
but it is a very busy time.
Kyle Hulehan (01:41):
And honestly, I've actually.
I want to follow up real quickwith this.
What is a place that you've beenfor tax foundation in unusual
place?
What's a place that you like, atthe tax foundation that you've
traveled for that you're maybehad a surprising or interesting
story from
Daniel Bunn (01:57):
So one place I've been able to go with Tax
Foundation, on a trip severalyears ago, back in 2019 was
Moldova.
there was a conference andeconomic policy conference
there.
And as part of that trip, therewas a sort of side venture to
Transnistria, which is this kindof breakaway, self governed area
that still is essentially undercommunism.
(02:20):
And you walk, walk through thestreets and there's these
different statues and memorials,to, to communism, and the
communist leaders.
And it's a very strange kind ofexperience.
in, the modern world to walkback and see, okay, there's some
places in the world that haven'treally moved on, over the last
40 years or so.
So I'd say that's probably oneof the more interesting places
(02:41):
I've been as part of my workwith tax foundation.
Kyle Hulehan (02:44):
That is a really fascinating story.
and yeah, these are, those aresome places that maybe it sounds
a little bit like they're alittle bit lost in time, but I
guess to catch up.
With modern times and where weare and to keep this on track.
I don't want to get too off therails.
I'm wondering, Alan, I'm gonnaI'm gonna throw this over to
you.
what's the latest on the globaltax deal?
(03:05):
And what are the currentdevelopments?
what's going on right now?
Alan Cole (03:08):
the big picture is that a lot of countries have
nominally agreed to establishthis 15 percent global minimum
tax on large corporations.
In practice, though, it's Europethat's full steam ahead on this,
and three of the world's largesteconomies, the United States,
India, and China, are stillreally yet to move on the global
(03:33):
minimum tax agreement known asPillar 2.
they're still almost in a kindof wait and see mode, and there
are Good reasons to believethat, the path to adoption and
compliance might, The stymiedfor quite a while.
for example, in the UnitedStates that Republicans in
(03:54):
Congress have been skeptical of,pillar twos benefits that the
United States, they note thatincreases in taxes abroad on us
companies almost necessarilymean less money left for
shareholders and.
The U.
S.
Treasury to split between themand furthermore, compliance with
(04:15):
pillar 2, would almost requirethe U.
S.
to rewrite some elements of itstax code, to international
specifications.
And, neither 1 of these things,seems great of a deal to
congressional Republicans orlike something that they would
support.
And, we may be looking at asituation where Republicans are
(04:35):
more likely than average to takethe Senate next year, which is
where treaties would need to beratified.
so the path to.
Global adoption is not so clearon the, global minimum tax, but
it is certainly, moving along inEurope.
Kyle Hulehan (04:50):
You know, imagine if everyone's playing a game and
we're trying to get everyone toagree on the same rules.
And there's people that kind ofwant to be playing either
different games or, they don'twant to play it the same way.
These aren't family or houserules.
They want to play by, they wantto, some people want.
The instruction manual, and somepeople want to be doing it a
little differently, and maybethat doesn't quite work.
Either way, it'll be educationalbecause I'm sure you guys can
(05:12):
follow up with that.
But I think I'm just trying tomake it more digestible for the
audience.
Does that make sense?
Daniel Bunn (05:19):
Yeah.
So one thing that, The conceptthat's been used to describe the
global minimum tax is that of acartel, where everyone is trying
to, look at the incentives fortax competition, and, some
policymakers have made thechoice that certain types of tax
competition, they, they don'tlike them, so that they're, so
(05:40):
they're going to try to geteverybody to agree to not use
tax policy in certain ways.
doesn't mean that taxcompetition is eliminated.
but this kind of group ofcountries has decided, Hey,
these are going to be theboundaries, for tax competition.
And that's, creates a couple ofproblems because you immediately
(06:02):
run into definitions of what isa good way to compete using
fiscal policy and what is a badway.
And some different countries usesubsidies or grants or tax
credits in a variety ofdifferent ways.
And what we're seeing is asthese rules kind of progress.
(06:26):
a lot of, jurisdictionsessentially thinking through,
Oh, well, under these new ruleswhere we've said, these certain
tax credits are more or less,going to get penalized under the
minimum tax rules.
well, we can move our fiscalpolicy away from those to the,
kind of subsidies that theminimum tax won't be as harsh
(06:48):
against.
So you're absolutely right.
This is a game.
People are agreeing to therules, but the rules create new
strategies and opportunities forcountries and for companies to
work within.
Kyle Hulehan (06:59):
Yeah.
a cartel is only just a littledifferent from a game.
So I think I pretty much nailedthat.
but yeah, Daniel, I'm comingback to you here again.
So how does the U.
S.
stack up against other countrieswhen it comes to complying with
Pillar 2 and the global tax dealoverall?
Daniel Bunn (07:15):
So depending on where you sit in the world, you
could have very differentanswers to this question.
so I was on Capitol Hill in2017, when the Tax Cuts and Jobs
Act was adopted, and some piecesof that law, essentially became
the template for the globalminimum tax.
So you could say the U.
(07:36):
S.
has been ahead of the game since2017 with rules that create sort
of a floor for the amount of taxthat or the tax rate that
companies face around the world.
However, if you're not in the U.
S.
and if you don't have anappreciation for what happened
in 2017, you may be looking atthe U.
(07:57):
S.
and say, the U.
S.
has done absolutely nothingwhatsoever to comply with this
set of rules.
and both answers would be rightin some respects.
it is true, like I said, thatthe U.
S.
kind of set a template, forthese rules.
But it's also true that the U.
S.
has not done anything to adoptthe rules that have been
actually agreed to, because, Thestandards are in a lot of ways
(08:22):
very different.
They're meeting the same policyconcern, which us at Tax
Foundation, we think about thepolicy concern and the tool.
other people care about, I wouldsay, different aesthetics of
policy and say, the U.
S.
hasn't actually adopted word forword what the OECD, these
countries around the worldagreed to.
Therefore, it hasn't doneanything to comply.
Kyle Hulehan (08:46):
I'm going to say this with much love and respect
for America as an Americancitizen.
that sounds pretty on brand forthe U.
S.
That sounds like we're really,just following right through
with what people think of us andhow we think of ourselves,
actually.
but to keep this rolling, Alan,I'm going to throw this over
your way.
What are some of the unusualconsequences we've seen from
(09:10):
Pillar 2 that mightSignificantly impacts smaller
countries.
I
Alan Cole (09:16):
If you're a small country, you've got, one of two
strategies, and it almostdepends on how small you are.
If you're a somewhat smallcountry, you kind of love this
tax on large global companies,because the reality is, even if
you're a small, rich country,most of the large global
countries Companies will be,from elsewhere, probably the
United States, maybe Germany onoccasion or France on occasion
(09:40):
or something like that.
and you are looking forward tothe idea that, you can, tax them
a little bit higher, not worryabout competitive, pressures
against your close by neighborsbecause they'll also be, raising
their tax rates.
you might think about, say, theBenelux countries.
those are countries that areclose together.
(10:00):
You can just drive from 1 to theother.
It would be very easy for themto get into a tax competition
that.
Reduces their taxes below 15%.
and that would be, that would bea bit of a struggle for them to
raise revenue from the corporateincome tax the other possibility
is that you're a very, verysmall country or jurisdiction,
(10:22):
say something more like Bermuda,and then your strategy is a
little bit different there.
It's not even so much about thecommerce that happens within
your borders.
It's about can you find any wayto be friendly enough to, Global
corporations or, global assets,global income that a little bit
(10:45):
of, income that doesn't really.
By any rational basis, belong inyour jurisdiction.
Can you do enough to attractpeople into making a holding
company that put some sort ofreal valuable asset there, even
if it's value is largely derivedfrom workers and consumers who
live elsewhere.
(11:05):
Um, that's, of course, the, youcould call that the tax haven
strategy, the low tax countrystrategy.
That's what pillar two is tryingto.
kill off, but it may not besucceeding because if you look
at what these countries aredoing, they are trying to
conform with the.
(11:26):
Letter of the rules under pillarto without necessarily
conforming to the spirit ofthem.
They're still trying to findways to offer what's effectively
very low taxes, to globalincome, global assets, but
they're finding a way to call ita 15 percent rate.
even if it's understood by bothparties, both their treasury
(11:49):
and, the corporations involvedto not really be 1.
So that's the bear case forPillar 2, the case that maybe
this isn't working at all.
If you see added complexitywhile countries basically just
try to restore the status quo,then you might say, we're
wasting a whole lot of effortand getting the same results.
Kyle Hulehan (12:14):
Yeah, we're often talking here about trade offs
and it sometimes seems when itcomes to the global tax deal in
pillar two, as far as like I'veseen in the conversations I've
had, it's not always seems worthit.
It doesn't always seem worth it.
And I do want to point out onething that you mentioned, Alan,
which was, I almost stoppedeverything when you said Benelux
(12:34):
countries.
That's why we have you on todayfor stuff like that.
We get pools like this.
this is why Alan's here today.
I want to switch over to Danielnow, and I'm wondering, as we're
talking about, this effect onbusinesses and what could
happen, are there specificindustries or sectors that you
think will be impacted the mostby the global tax deal?
Daniel Bunn (12:57):
That's a great question.
I think the impact by design isgoing to be less about industry
or sector and more about thesize of companies.
There's a revenue global revenuethreshold.
That essentially exempts a lotof smaller multinationals, but
(13:18):
once you're above thatthreshold, you're in and you
have to do full compliance andthere currently are some sort of
safe harbors that providesimpler compliance in some
circumstances, but these arepotentially temporary.
So a company that it's based inthe U.
S.
and has earnings in, let's say,50 other jurisdictions.
(13:42):
They're probably going to haveto do at least 50, different
calculations to, analyze whetherthey're paying the 15 percent
that Mount Allen mentionedearlier.
and com these tax rules.
And these are brand newwholesale tax rules.
These aren't rules that were preexisting in any country's tax
(14:03):
laws before this minimum tax.
So countries are putting inthese laws and companies are
having to figure out what thesenew definitions and terms and
calculations and filingrequirements, all mean for
their, overall complianceburden.
And then on the government side,Governments are going to have
to, analyze and potentiallyaudit these, these, tax filings
(14:29):
and figure out, what the kind ofnet, impact is going to be for
them as well.
So it's more of a size thingthan any sort of, sectoral
thing.
Kyle Hulehan (14:39):
Yeah, that's starting to sound really
complex.
And very complicated.
And it's bringing in a lot ofnew things.
And this segues perfectly intomy next question for Alan, which
is, what kind of retaliationcould we see from countries,
that don't want to comply withthese rules?
And could you maybe explain whata mechanism for complying is?
(15:02):
I think it's called UTPR.
Alan Cole (15:04):
Yeah, so the UTPR is the, Rule by which Pillar 2
countries are essentially goingto try to make other countries
adopt Pillar 2.
It's a little bit like one ofthose schoolyard games where,
you start out with one person,as the zombie in zombie tag.
And as they tag other people,they become zombies too until
(15:26):
there's one person left runningaround and trying to avoid
everybody.
That's UTPR mechanism is and itis.
You could call it anextraterritorial where,
countries go beyond what's intheir borders to try to police,
more worldwide, taxation ofcompanies.
so Here's how it works say thatthere isn't a, a qualified
(15:48):
domestic minimum top up tax.
That's the pillar to complianttax, in a country where a
company operates.
And then let's say, that theirparent, Entity or their country
where their headquartered alsodoesn't really worry about
enforcing pillar 2 and say thatthey're paying less than 15%.
(16:10):
that could be a failure ofpillar 2 if that's allowed to go
on.
what the, uh.
does is it says any countrywhere that company operates can
say, hey, over in this otherjurisdiction, even though it's
not our jurisdiction, we noticedthat your tax rate is too low.
(16:30):
So we're going to charge you.
Extra attacks on your stuff overhere, even if your income tax
rate over here is fine.
Um, we're going to charge youextra income tax to make up for
the fact that essentially youweren't paying enough income tax
in this other jurisdiction thatwe have nothing to do with.
And the results of that can geta little bit crazy, like you
(16:51):
could imagine a huge U.
S.
conglomerate and it has, justsome small footholds in, small
foreign countries, some of themin Europe, and the small foreign
countries could essentially takeit upon themselves, to, say,
This U.
S.
Tax policy does not meet thepillar to 15 percent standard.
so we're going to go after yourkind of satellite holdings in
(17:15):
our small countries, but basedon the revenue, income and tax
profile of the entireconglomerate, and that's
Something that really hasn'tbeen allowed in international
tax before.
That's not a thing that you'resupposed to be able to do.
you're supposed to be able totax within your borders or if
it's one of your companies, butyou can't go off and make
(17:39):
assertions about other people'sborders and other people's
companies, except to the extentthat they are practicing within
your borders.
So the UDPR is a little bit.
Unprecedented and, you couldeasily, say as a country, we've
never seen this before.
we don't allow it.
We don't agree to it.
and, just because we said ratesshould be 15 percent in general
(18:01):
doesn't mean that we've agreedto, let other countries reach
into our tax base.
Retaliation against that couldbasically take the form of, a
trade war sort of situationwith, something resembling,
escalating tariffs, maybeliteral tariffs, or maybe
something more on the income taxside.
we know that, The U.
(18:22):
S.
Has gotten a little bit morebellicose about trade in the
last few years.
we've seen the U.
S.
more willing to assess tariffsfor better or for worse.
And one proposal out of HouseRepublicans, more of a messaging
proposal than anything, wouldsay that essentially, if, Global
firms, from the U.
(18:44):
S.
Are assessed with adiscriminatory tax, and they
make sure to include the U.
T.
P.
R.
And that, then, we could bejustified in levying
discriminatory taxes againstinbound investment into the U.
S.
And you get the sense that theauthors of the bill don't
actually really want to beassessing discriminatory taxes
(19:04):
on inbound investment, and theylike in inbound investment.
They are trying to exertleverage over foreign policy
makers and tell them, hey, cutus a break.
Kyle Hulehan (19:13):
So if I have this correct, U T P R, you can
basically just, I want to hitthis home for the audience, you
can basically just swoop in andtax a country more if another
country didn't tax enough.
So you can just take otherpeople's money.
They're like, ah, you didn'ttake enough.
So I'm going to grab some ofthat.
Alan Cole (19:31):
Yep, yep, you could imagine, the revenue service of
Hungary or Romania going outand, uh, talking about what's
going on in the U.
S.
and attempting to do the IRS'sjob, essentially.
Kyle Hulehan (19:46):
I know that I work here at a tax organization, but
I'm just, I'm like dumbfoundedby that.
and I know I've heard peopletalk about it before, but when
you really think about it inthis context, it's no, I'm just
going to take a little bit fromthem.
I'm just going to take it.
Like it does not make sense.
a lot of sense to me.
it really doesn't.
and we're talking about UTPR,we're talking about Pillar 2,
(20:08):
but before that there issomething called Pillar 1.
1 comes before 2.
Daniel, could you briefly breakdown for us What pillar one is
and how that fits into theglobal tax deal and the
conversation we're having today.
Daniel Bunn (20:21):
So, Alan's comment about zombie tag.
I'm going to continue to use thezombie term here because pillar
one at this stage isessentially, if not fully dead,
dying or in zombie land.
Pillar one attacks a differentpolicy concern than the global
minimum tax.
So the global minimum tax isabout how much a company might
(20:45):
be paying in taxes around theworld.
Pillar one It's about where acompany might pay taxes.
multinational companies havecustomers all around the world,
and they make choices aboutwhere they produce, where they
do their research anddevelopment and where they're,
their workers are.
(21:05):
And standard tax rules based onwhere a company is located, we
call this, residence basedtaxation.
you look at where profits aregenerated based on the
activities of the company inproduction, R& D, and so forth.
However, Policymakers lookingparticularly at large tech
(21:29):
companies, and some other largebrand companies were saying,
hey, there's a lot of value fromthe consumer.
we want to make sure that someof the profits that these
companies are, generating aretaxed in the location where the
consumer is, even if.
The company doesn't have anyemployees or research and
(21:51):
development in thosejurisdictions, and this is,
looking at the kind of thedestination of, of corporate,
activity.
So where the customer is, we, wetalk about this in destination
based terms.
Now, that's perfectly, finelogic.
You could create, and TaxFoundation has looked at
(22:12):
proposals, in the past that docreate a wholly consistent
corporate tax regime focused onthe location of final
consumption.
But, that's not what Pillar 1was really doing.
It was saying, okay, we're goingto rely on residents for some
parts of corporate profits,where the headquarters are,
(22:33):
where the employees are, andthings like that.
and then for another part ofcorporate profits, there's this
formula that slices off a sliceof corporate profits, and they
say, we're going to find outwhere the customers are.
for that slice of corporateprofits and taxed those profits
in that, jurisdiction.
Now, it's been an extremelyinteresting but not super
(22:55):
fruitful process over the lastfive years.
So unlike Pillar 2, the globalminimum tax, there is currently
no agreement on the rules forPillar 1.
And one of the problems thatpillar one was trying to solve
was countries doing a sort ofself help approach to taxing
(23:15):
companies based on their,consumers or activities in their
jurisdictions.
And this self help approach iscommonly seen in digital
services taxes.
Canada implemented one veryrecently.
But these are taxes on revenues,not profits.
Profits are your revenues minusyour costs.
(23:38):
You have to take out the costsin order to get a tax on
profits.
And taxing revenues is veryharmful economically.
It, essentially punishescompanies that have lower profit
margins.
if you're making a 2 percentprofit margin, and there's a 3
percent tax on your revenue, youare going to be paying more in
(24:00):
tax, than you're making inprofits that would be available
for your shareholders.
But if you're making a 10percent profit margin, suddenly
you're able.
to pay the tax.
So pillar one's trying to say,okay, we don't like this self
help, revenue focused, solutionthat a lot of these countries
are working on.
We're going to create this otherthing that is focused on
(24:22):
profits.
But it is a clear zero sum gamebecause if you're taking profits
from taxable profits from onecountry and moving them to
another, the country where theprofits are leaving has, we'll
have concerns about, well, Hey,all of a sudden my tax revenue,
is no longer going to the U Streasury.
Maybe it's going to France orsome other, other jurisdiction.
(24:45):
And it is just created a policykind of, standstill.
Okay.
for negotiating out, Pillar 1.
There's, there was a deadline atthe end of June for there to be
this draft, or agreed to treatytext for Pillar 1.
we are now, at July 25th.
and it's not clear if this finalagreement will ever be reached.
(25:06):
so that's where Pillar 1 stands.
And even though it is, one comesbefore two, Pillar 2 is much
further along.
Kyle Hulehan (25:14):
I see.
And so if I'm going to make thisreally simple or for it to work
in my brain and maybe for thelisteners, this is totally
hypothetical.
Uh, YouTube.
Is getting money from peoplewatching videos in France.
there's no employees in France,And so France now wants to get
(25:34):
some of that money.
Is that kind of how pillar oneis?
Daniel Bunn (25:38):
Yeah, pillar one would say, Hey, you've got a lot
of, consumers or users in Franceand we're going to use a formula
that says France gets part ofYouTube's profits based on the
amount of consumers of theirproducts in France, even though
in your scenario, they have noemployees in France.
(25:58):
and this is similar to the UTPRsituation that we were talking
about earlier where a country isreaching in, to another
jurisdiction's tax base andsaying, hey, we want the money
to be over here rather than overthere.
Again, you can conceptually getto a holistic policy.
allocates where taxes are paidbased on consumption.
(26:21):
But this is building this littlepiece that's really complex onto
an existing superstructure thatmostly looks at where corporates
have their headquarters andtheir workers and R& D and
production and such.
Kyle Hulehan (26:36):
yeah, it's certainly adding a lot of
complexity onto it.
and as we're explaining this andworking through it, you can just
see how complex and complicatedall of this is.
So I think we can see that someof this does not work so well.
and as we're wrapping up here, Ihave this final question for
Alan, but Daniel, for free tojump in after he responds with
anything else, maybe you want toadd, Alan, where do you think
(26:59):
All of this is heading.
What's the future of the globaltax deal in pillar two?
And is there any hope for asolution?
Are there better ideas?
What do you got?
Alan Cole (27:09):
I think it's possible that, the global minimum tax
deal doesn't become truly globaland it remains, a project of,
Europe and some other OECDcountries, but not say, the big
economies of China, India andthe U.
S.
I don't think that outcome isnecessarily, Necessarily means a
(27:33):
total failure, because it doesmean that European, countries,
would be, able to cartelize alarge region and, keep
competitive, pressures from, taxrates going too low, which is an
objective that they want, at thesame time, it isn't really like
the United States, or for thatmatter, many other large
(27:54):
countries that have been sloweron pillar two.
It's not like the United Statesis really the problem that
Europe was attempting to solvein pushing for the global
minimum tax the United States wethink of it as a low tax
country, and it is on personalincome, but on corporate income,
(28:14):
the United States really hasn'tbeen a driver of tax
competition.
In fact, it's been a bit of theopposite because it has such a
strong economy, such a largeeconomy, so much leverage.
over, even the largestcorporations, it's been able to
sustain, high corporate incometax rates, 35 percent before
(28:35):
2017 and still 21 percent after.
that's above by a considerableamount, the 15 percent global
minimum.
so an absence of, U.
S.
participation, does not reallyimply that.
The U.
S.
Would be pursuing, say, a taxhaven strategy.
that, costs Europe.
(28:56):
It's, tax base.
that's not really somethingthat, the European Union has to
worry about.
And so I think, accepting apartial win is one of the
possible outcomes here, for,European policy makers.
it's also possible that,Especially if you've got, a very
strong result for the U SDemocrats, in the upcoming 2024
(29:19):
election, they might decide,it's best to just not haggle
over, slight differences andinstead, become more fully,
committed.
Compliant with pillar two.
And in that case, hopefully youwould use that as an
opportunity, to simplify andknock out some U.
S.
Provisions so that, over theshort run, there's change and,
(29:39):
and U.
S.
Firms have to get used tosomething new, but in the longer
run, they might be able to say,at least our reporting at least
our definitions of Things arestandardized with some of the
other larger economies, and thatcould provide some upside
Daniel Bunn (29:55):
Yeah, and I'll just, Kyle, I appreciate your
patience with the detail inthis, in this call and admit
that Alan and I both areregularly scratching our heads
looking at how this all cametogether and trying to
understand the justificationsbecause some of the results are,
Just, so complex and contrary tothe initial, goal or we see it
(30:18):
that way.
and it makes it for, a very,stimulating intellectual
exercise, but one that requiresa lot of patients just trying to
figure out like what is actuallyhappening here and what did
policymakers, intend.
And then once you get throughthat, The kind of full picture
you're able to step back andsay, Wait, none of this really
makes any sense.
Kyle Hulehan (30:39):
You know, it's funny, I was doing a lot of prep
for this podcast today.
And I was rereading a lot of thegreat articles you guys have
written on this stuff.
And I kept getting to theconclusion.
And I was like, Oh, they're justsaying, this doesn't make sense.
We're confused.
This is challenging.
This is unnecessarilycomplicated.
And that was like the theme ofall of this.
And I think the theme of this aswe've seen it throughout.
(31:00):
And, and yeah, it does requirepatience.
Cause you're like, what's goingon?
I don't quite get it.
so yeah,I'm right there with youand I have no problem being
patient, especially when youguys are on here being so
eloquent and,look, hey, zombiescame up a few more times than I
expected, but I appreciate youguys being on the show today.
And I just want to give you guysone last runway, each of you to
just plug anything you'reworking on right now.
(31:21):
That's always how we kind ofwrap things up.
Daniel Bunn (31:22):
Yeah, so I've got a couple of opportunities to speak
to some groups coming up, andmost of what I'm doing is
collecting a lot of the workthat we've been doing focused on
2025 and try to make sure thatit connects.
with the various audiences sothat they can understand the
stakes of the game and some ofthe ways that they can think
through, pro growth policyoptions that kind of support the
(31:48):
principles that we espouse.,
Alan Cole (31:50):
and I'll be first looking to Canada and it's
digital services tax.
These are, uh, kind of almostpillar 1, proto pillar 1 taxes,
but assessed individually and adhoc by a variety of countries.
And, There's a good case to bemade that these are
(32:10):
discriminatory against U.
S.
companies and in the case ofCanada in particular, that's
especially of concern becauseCanada has a free trade
agreement with the U.
S.
And if there's 1 thing we'velearned today, it's.
It's definitely that tax policykind of bleeds into trade
policy, and some of these taxeslook an awful lot like tariffs.
(32:32):
And I expect that we'll see somecomplaints to that effect about
the Canadian tax.
Further down the line, I'll belooking at the U.
S.
response to Pillar 2, and howthe U.
S.
international policy haschanged.
Provisions could be changed inthe upcoming tax reform cycle.
(32:53):
We think it's likely thatthere's going to be a tax reform
bill or some kind of tax bill inthe next Congress.
And so there's an opportunity tolook at the international
provisions then, and I'll betrying to get a bit of a head
start on that.
Kyle Hulehan (33:08):
Gentlemen, thank you for being on the show today.
Daniel Bunn (33:11):
Thanks,
Alan Cole (33:12):
you.
Kyle Hulehan (33:16):
This has been another episode of the deduction
to learn more about the taxfoundation and the deduction.
Visit us at taxfoundation.
org slash podcast.
You can follow us on Twitter,Facebook, and LinkedIn at tax
foundation.
If you've been enjoying our showand want to help us grow, please
leave a five star review onApple Podcasts, Spotify, or
(33:38):
wherever you get your podcasts.
It helps others find the show.
And if you didn't enjoy thededuction, well, keep it to
yourself.
Another way you can support ourwork is by donating to the Tax
Foundation on our website.
Thank you all for listening, andwe'll see you next time.
The global tax deal and pillar two are shaking
up the tax landscape worldwide.
Introducing a web of complexityand confusion.
Today, we untangled the keyaspects of these proposals
diving into the latest updates,compliance hurdles and their
ripple effects on industries andsmaller nations.
Hello and welcome to thededuction, a tax foundation
(00:21):
podcast.
I'm your host Kyle.
And today we brought up the bigguns for a large and complex
topic.
We're joined by Daniel Bunn,president and CEO of tax
foundation and Alan Cole, senioreconomist here.
At the tax foundation gentlemen,it's good to have you both in
the show today And i'm justgoing to set the stage real
quick for our listeners We'retalking about the global tax
(00:43):
deal and we're talking aboutpillar two today These are you
know, very complex topics, whichis why we have two of the best
on here today but before we getinto that, I just want to you
know, take this moment to get aquick update from daniel he's a
busy man.
He's got a packed schedule.
He's always moving around.
He's got a lot going on And I'mjust wondering, what have you
been working on?
What have you been engaging withlately?
(01:05):
and where have you been takingthe tax foundations message?
Daniel Bunn (01:08):
Yeah.
Thanks so much for having me onthe podcast, Kyle.
it's been a busy time.
at the federal level inWashington DC, we're preparing
for what some people havecalled,tax Superbowl or
taxmageddon, depending on whichway you look at it.
A lot of tax policy on thetable, at the U S federal level
in 2025.
but we've also recently launchedtax foundation Europe.
(01:29):
And I was in Europe last weekwith meetings, with policy
makers.
in London and Budapest andlooking at opportunities to
promote, sound tax policy,around the world.
but it is a very busy time.
Kyle Hulehan (01:41):
And honestly, I've actually.
I want to follow up real quickwith this.
What is a place that you've beenfor tax foundation in unusual
place?
What's a place that you like, atthe tax foundation that you've
traveled for that you're maybehad a surprising or interesting
story from
Daniel Bunn (01:57):
So one place I've been able to go with Tax
Foundation, on a trip severalyears ago, back in 2019 was
Moldova.
there was a conference andeconomic policy conference
there.
And as part of that trip, therewas a sort of side venture to
Transnistria, which is this kindof breakaway, self governed area
that still is essentially undercommunism.
(02:20):
And you walk, walk through thestreets and there's these
different statues and memorials,to, to communism, and the
communist leaders.
And it's a very strange kind ofexperience.
in, the modern world to walkback and see, okay, there's some
places in the world that haven'treally moved on, over the last
40 years or so.
So I'd say that's probably oneof the more interesting places
(02:41):
I've been as part of my workwith tax foundation.
Kyle Hulehan (02:44):
That is a really fascinating story.
and yeah, these are, those aresome places that maybe it sounds
a little bit like they're alittle bit lost in time, but I
guess to catch up.
With modern times and where weare and to keep this on track.
I don't want to get too off therails.
I'm wondering, Alan, I'm gonnaI'm gonna throw this over to
you.
what's the latest on the globaltax deal?
(03:05):
And what are the currentdevelopments?
what's going on right now?
Alan Cole (03:08):
the big picture is that a lot of countries have
nominally agreed to establishthis 15 percent global minimum
tax on large corporations.
In practice, though, it's Europethat's full steam ahead on this,
and three of the world's largesteconomies, the United States,
India, and China, are stillreally yet to move on the global
(03:33):
minimum tax agreement known asPillar 2.
they're still almost in a kindof wait and see mode, and there
are Good reasons to believethat, the path to adoption and
compliance might, The stymiedfor quite a while.
for example, in the UnitedStates that Republicans in
(03:54):
Congress have been skeptical of,pillar twos benefits that the
United States, they note thatincreases in taxes abroad on us
companies almost necessarilymean less money left for
shareholders and.
The U.
S.
Treasury to split between themand furthermore, compliance with
(04:15):
pillar 2, would almost requirethe U.
S.
to rewrite some elements of itstax code, to international
specifications.
And, neither 1 of these things,seems great of a deal to
congressional Republicans orlike something that they would
support.
And, we may be looking at asituation where Republicans are
(04:35):
more likely than average to takethe Senate next year, which is
where treaties would need to beratified.
so the path to.
Global adoption is not so clearon the, global minimum tax, but
it is certainly, moving along inEurope.
Kyle Hulehan (04:50):
You know, imagine if everyone's playing a game and
we're trying to get everyone toagree on the same rules.
And there's people that kind ofwant to be playing either
different games or, they don'twant to play it the same way.
These aren't family or houserules.
They want to play by, they wantto, some people want.
The instruction manual, and somepeople want to be doing it a
little differently, and maybethat doesn't quite work.
Either way, it'll be educationalbecause I'm sure you guys can
(05:12):
follow up with that.
But I think I'm just trying tomake it more digestible for the
audience.
Does that make sense?
Daniel Bunn (05:19):
Yeah.
So one thing that, The conceptthat's been used to describe the
global minimum tax is that of acartel, where everyone is trying
to, look at the incentives fortax competition, and, some
policymakers have made thechoice that certain types of tax
competition, they, they don'tlike them, so that they're, so
(05:40):
they're going to try to geteverybody to agree to not use
tax policy in certain ways.
doesn't mean that taxcompetition is eliminated.
but this kind of group ofcountries has decided, Hey,
these are going to be theboundaries, for tax competition.
And that's, creates a couple ofproblems because you immediately
(06:02):
run into definitions of what isa good way to compete using
fiscal policy and what is a badway.
And some different countries usesubsidies or grants or tax
credits in a variety ofdifferent ways.
And what we're seeing is asthese rules kind of progress.
(06:26):
a lot of, jurisdictionsessentially thinking through,
Oh, well, under these new ruleswhere we've said, these certain
tax credits are more or less,going to get penalized under the
minimum tax rules.
well, we can move our fiscalpolicy away from those to the,
kind of subsidies that theminimum tax won't be as harsh
(06:48):
against.
So you're absolutely right.
This is a game.
People are agreeing to therules, but the rules create new
strategies and opportunities forcountries and for companies to
work within.
Kyle Hulehan (06:59):
Yeah.
a cartel is only just a littledifferent from a game.
So I think I pretty much nailedthat.
but yeah, Daniel, I'm comingback to you here again.
So how does the U.
S.
stack up against other countrieswhen it comes to complying with
Pillar 2 and the global tax dealoverall?
Daniel Bunn (07:15):
So depending on where you sit in the world, you
could have very differentanswers to this question.
so I was on Capitol Hill in2017, when the Tax Cuts and Jobs
Act was adopted, and some piecesof that law, essentially became
the template for the globalminimum tax.
So you could say the U.
(07:36):
S.
has been ahead of the game since2017 with rules that create sort
of a floor for the amount of taxthat or the tax rate that
companies face around the world.
However, if you're not in the U.
S.
and if you don't have anappreciation for what happened
in 2017, you may be looking atthe U.
(07:57):
S.
and say, the U.
S.
has done absolutely nothingwhatsoever to comply with this
set of rules.
and both answers would be rightin some respects.
it is true, like I said, thatthe U.
S.
kind of set a template, forthese rules.
But it's also true that the U.
S.
has not done anything to adoptthe rules that have been
actually agreed to, because, Thestandards are in a lot of ways
(08:22):
very different.
They're meeting the same policyconcern, which us at Tax
Foundation, we think about thepolicy concern and the tool.
other people care about, I wouldsay, different aesthetics of
policy and say, the U.
S.
hasn't actually adopted word forword what the OECD, these
countries around the worldagreed to.
Therefore, it hasn't doneanything to comply.
Kyle Hulehan (08:46):
I'm going to say this with much love and respect
for America as an Americancitizen.
that sounds pretty on brand forthe U.
S.
That sounds like we're really,just following right through
with what people think of us andhow we think of ourselves,
actually.
but to keep this rolling, Alan,I'm going to throw this over
your way.
What are some of the unusualconsequences we've seen from
(09:10):
Pillar 2 that mightSignificantly impacts smaller
countries.
I
Alan Cole (09:16):
If you're a small country, you've got, one of two
strategies, and it almostdepends on how small you are.
If you're a somewhat smallcountry, you kind of love this
tax on large global companies,because the reality is, even if
you're a small, rich country,most of the large global
countries Companies will be,from elsewhere, probably the
United States, maybe Germany onoccasion or France on occasion
(09:40):
or something like that.
and you are looking forward tothe idea that, you can, tax them
a little bit higher, not worryabout competitive, pressures
against your close by neighborsbecause they'll also be, raising
their tax rates.
you might think about, say, theBenelux countries.
those are countries that areclose together.
(10:00):
You can just drive from 1 to theother.
It would be very easy for themto get into a tax competition
that.
Reduces their taxes below 15%.
and that would be, that would bea bit of a struggle for them to
raise revenue from the corporateincome tax the other possibility
is that you're a very, verysmall country or jurisdiction,
(10:22):
say something more like Bermuda,and then your strategy is a
little bit different there.
It's not even so much about thecommerce that happens within
your borders.
It's about can you find any wayto be friendly enough to, Global
corporations or, global assets,global income that a little bit
(10:45):
of, income that doesn't really.
By any rational basis, belong inyour jurisdiction.
Can you do enough to attractpeople into making a holding
company that put some sort ofreal valuable asset there, even
if it's value is largely derivedfrom workers and consumers who
live elsewhere.
(11:05):
Um, that's, of course, the, youcould call that the tax haven
strategy, the low tax countrystrategy.
That's what pillar two is tryingto.
kill off, but it may not besucceeding because if you look
at what these countries aredoing, they are trying to
conform with the.
(11:26):
Letter of the rules under pillarto without necessarily
conforming to the spirit ofthem.
They're still trying to findways to offer what's effectively
very low taxes, to globalincome, global assets, but
they're finding a way to call ita 15 percent rate.
even if it's understood by bothparties, both their treasury
(11:49):
and, the corporations involvedto not really be 1.
So that's the bear case forPillar 2, the case that maybe
this isn't working at all.
If you see added complexitywhile countries basically just
try to restore the status quo,then you might say, we're
wasting a whole lot of effortand getting the same results.
Kyle Hulehan (12:14):
Yeah, we're often talking here about trade offs
and it sometimes seems when itcomes to the global tax deal in
pillar two, as far as like I'veseen in the conversations I've
had, it's not always seems worthit.
It doesn't always seem worth it.
And I do want to point out onething that you mentioned, Alan,
which was, I almost stoppedeverything when you said Benelux
(12:34):
countries.
That's why we have you on todayfor stuff like that.
We get pools like this.
this is why Alan's here today.
I want to switch over to Danielnow, and I'm wondering, as we're
talking about, this effect onbusinesses and what could
happen, are there specificindustries or sectors that you
think will be impacted the mostby the global tax deal?
Daniel Bunn (12:57):
That's a great question.
I think the impact by design isgoing to be less about industry
or sector and more about thesize of companies.
There's a revenue global revenuethreshold.
That essentially exempts a lotof smaller multinationals, but
(13:18):
once you're above thatthreshold, you're in and you
have to do full compliance andthere currently are some sort of
safe harbors that providesimpler compliance in some
circumstances, but these arepotentially temporary.
So a company that it's based inthe U.
S.
and has earnings in, let's say,50 other jurisdictions.
(13:42):
They're probably going to haveto do at least 50, different
calculations to, analyze whetherthey're paying the 15 percent
that Mount Allen mentionedearlier.
and com these tax rules.
And these are brand newwholesale tax rules.
These aren't rules that were preexisting in any country's tax
(14:03):
laws before this minimum tax.
So countries are putting inthese laws and companies are
having to figure out what thesenew definitions and terms and
calculations and filingrequirements, all mean for
their, overall complianceburden.
And then on the government side,Governments are going to have
to, analyze and potentiallyaudit these, these, tax filings
(14:29):
and figure out, what the kind ofnet, impact is going to be for
them as well.
So it's more of a size thingthan any sort of, sectoral
thing.
Kyle Hulehan (14:39):
Yeah, that's starting to sound really
complex.
And very complicated.
And it's bringing in a lot ofnew things.
And this segues perfectly intomy next question for Alan, which
is, what kind of retaliationcould we see from countries,
that don't want to comply withthese rules?
And could you maybe explain whata mechanism for complying is?
(15:02):
I think it's called UTPR.
Alan Cole (15:04):
Yeah, so the UTPR is the, Rule by which Pillar 2
countries are essentially goingto try to make other countries
adopt Pillar 2.
It's a little bit like one ofthose schoolyard games where,
you start out with one person,as the zombie in zombie tag.
And as they tag other people,they become zombies too until
(15:26):
there's one person left runningaround and trying to avoid
everybody.
That's UTPR mechanism is and itis.
You could call it anextraterritorial where,
countries go beyond what's intheir borders to try to police,
more worldwide, taxation ofcompanies.
so Here's how it works say thatthere isn't a, a qualified
(15:48):
domestic minimum top up tax.
That's the pillar to complianttax, in a country where a
company operates.
And then let's say, that theirparent, Entity or their country
where their headquartered alsodoesn't really worry about
enforcing pillar 2 and say thatthey're paying less than 15%.
(16:10):
that could be a failure ofpillar 2 if that's allowed to go
on.
what the, uh.
does is it says any countrywhere that company operates can
say, hey, over in this otherjurisdiction, even though it's
not our jurisdiction, we noticedthat your tax rate is too low.
(16:30):
So we're going to charge you.
Extra attacks on your stuff overhere, even if your income tax
rate over here is fine.
Um, we're going to charge youextra income tax to make up for
the fact that essentially youweren't paying enough income tax
in this other jurisdiction thatwe have nothing to do with.
And the results of that can geta little bit crazy, like you
(16:51):
could imagine a huge U.
S.
conglomerate and it has, justsome small footholds in, small
foreign countries, some of themin Europe, and the small foreign
countries could essentially takeit upon themselves, to, say,
This U.
S.
Tax policy does not meet thepillar to 15 percent standard.
so we're going to go after yourkind of satellite holdings in
(17:15):
our small countries, but basedon the revenue, income and tax
profile of the entireconglomerate, and that's
Something that really hasn'tbeen allowed in international
tax before.
That's not a thing that you'resupposed to be able to do.
you're supposed to be able totax within your borders or if
it's one of your companies, butyou can't go off and make
(17:39):
assertions about other people'sborders and other people's
companies, except to the extentthat they are practicing within
your borders.
So the UDPR is a little bit.
Unprecedented and, you couldeasily, say as a country, we've
never seen this before.
we don't allow it.
We don't agree to it.
and, just because we said ratesshould be 15 percent in general
(18:01):
doesn't mean that we've agreedto, let other countries reach
into our tax base.
Retaliation against that couldbasically take the form of, a
trade war sort of situationwith, something resembling,
escalating tariffs, maybeliteral tariffs, or maybe
something more on the income taxside.
we know that, The U.
(18:22):
S.
Has gotten a little bit morebellicose about trade in the
last few years.
we've seen the U.
S.
more willing to assess tariffsfor better or for worse.
And one proposal out of HouseRepublicans, more of a messaging
proposal than anything, wouldsay that essentially, if, Global
firms, from the U.
(18:44):
S.
Are assessed with adiscriminatory tax, and they
make sure to include the U.
T.
P.
R.
And that, then, we could bejustified in levying
discriminatory taxes againstinbound investment into the U.
S.
And you get the sense that theauthors of the bill don't
actually really want to beassessing discriminatory taxes
(19:04):
on inbound investment, and theylike in inbound investment.
They are trying to exertleverage over foreign policy
makers and tell them, hey, cutus a break.
Kyle Hulehan (19:13):
So if I have this correct, U T P R, you can
basically just, I want to hitthis home for the audience, you
can basically just swoop in andtax a country more if another
country didn't tax enough.
So you can just take otherpeople's money.
They're like, ah, you didn'ttake enough.
So I'm going to grab some ofthat.
Alan Cole (19:31):
Yep, yep, you could imagine, the revenue service of
Hungary or Romania going outand, uh, talking about what's
going on in the U.
S.
and attempting to do the IRS'sjob, essentially.
Kyle Hulehan (19:46):
I know that I work here at a tax organization, but
I'm just, I'm like dumbfoundedby that.
and I know I've heard peopletalk about it before, but when
you really think about it inthis context, it's no, I'm just
going to take a little bit fromthem.
I'm just going to take it.
Like it does not make sense.
a lot of sense to me.
it really doesn't.
and we're talking about UTPR,we're talking about Pillar 2,
(20:08):
but before that there issomething called Pillar 1.
1 comes before 2.
Daniel, could you briefly breakdown for us What pillar one is
and how that fits into theglobal tax deal and the
conversation we're having today.
Daniel Bunn (20:21):
So, Alan's comment about zombie tag.
I'm going to continue to use thezombie term here because pillar
one at this stage isessentially, if not fully dead,
dying or in zombie land.
Pillar one attacks a differentpolicy concern than the global
minimum tax.
So the global minimum tax isabout how much a company might
(20:45):
be paying in taxes around theworld.
Pillar one It's about where acompany might pay taxes.
multinational companies havecustomers all around the world,
and they make choices aboutwhere they produce, where they
do their research anddevelopment and where they're,
their workers are.
(21:05):
And standard tax rules based onwhere a company is located, we
call this, residence basedtaxation.
you look at where profits aregenerated based on the
activities of the company inproduction, R& D, and so forth.
However, Policymakers lookingparticularly at large tech
(21:29):
companies, and some other largebrand companies were saying,
hey, there's a lot of value fromthe consumer.
we want to make sure that someof the profits that these
companies are, generating aretaxed in the location where the
consumer is, even if.
The company doesn't have anyemployees or research and
(21:51):
development in thosejurisdictions, and this is,
looking at the kind of thedestination of, of corporate,
activity.
So where the customer is, we, wetalk about this in destination
based terms.
Now, that's perfectly, finelogic.
You could create, and TaxFoundation has looked at
(22:12):
proposals, in the past that docreate a wholly consistent
corporate tax regime focused onthe location of final
consumption.
But, that's not what Pillar 1was really doing.
It was saying, okay, we're goingto rely on residents for some
parts of corporate profits,where the headquarters are,
(22:33):
where the employees are, andthings like that.
and then for another part ofcorporate profits, there's this
formula that slices off a sliceof corporate profits, and they
say, we're going to find outwhere the customers are.
for that slice of corporateprofits and taxed those profits
in that, jurisdiction.
Now, it's been an extremelyinteresting but not super
(22:55):
fruitful process over the lastfive years.
So unlike Pillar 2, the globalminimum tax, there is currently
no agreement on the rules forPillar 1.
And one of the problems thatpillar one was trying to solve
was countries doing a sort ofself help approach to taxing
(23:15):
companies based on their,consumers or activities in their
jurisdictions.
And this self help approach iscommonly seen in digital
services taxes.
Canada implemented one veryrecently.
But these are taxes on revenues,not profits.
Profits are your revenues minusyour costs.
(23:38):
You have to take out the costsin order to get a tax on
profits.
And taxing revenues is veryharmful economically.
It, essentially punishescompanies that have lower profit
margins.
if you're making a 2 percentprofit margin, and there's a 3
percent tax on your revenue, youare going to be paying more in
(24:00):
tax, than you're making inprofits that would be available
for your shareholders.
But if you're making a 10percent profit margin, suddenly
you're able.
to pay the tax.
So pillar one's trying to say,okay, we don't like this self
help, revenue focused, solutionthat a lot of these countries
are working on.
We're going to create this otherthing that is focused on
(24:22):
profits.
But it is a clear zero sum gamebecause if you're taking profits
from taxable profits from onecountry and moving them to
another, the country where theprofits are leaving has, we'll
have concerns about, well, Hey,all of a sudden my tax revenue,
is no longer going to the U Streasury.
Maybe it's going to France orsome other, other jurisdiction.
(24:45):
And it is just created a policykind of, standstill.
Okay.
for negotiating out, Pillar 1.
There's, there was a deadline atthe end of June for there to be
this draft, or agreed to treatytext for Pillar 1.
we are now, at July 25th.
and it's not clear if this finalagreement will ever be reached.
(25:06):
so that's where Pillar 1 stands.
And even though it is, one comesbefore two, Pillar 2 is much
further along.
Kyle Hulehan (25:14):
I see.
And so if I'm going to make thisreally simple or for it to work
in my brain and maybe for thelisteners, this is totally
hypothetical.
Uh, YouTube.
Is getting money from peoplewatching videos in France.
there's no employees in France,And so France now wants to get
(25:34):
some of that money.
Is that kind of how pillar oneis?
Daniel Bunn (25:38):
Yeah, pillar one would say, Hey, you've got a lot
of, consumers or users in Franceand we're going to use a formula
that says France gets part ofYouTube's profits based on the
amount of consumers of theirproducts in France, even though
in your scenario, they have noemployees in France.
(25:58):
and this is similar to the UTPRsituation that we were talking
about earlier where a country isreaching in, to another
jurisdiction's tax base andsaying, hey, we want the money
to be over here rather than overthere.
Again, you can conceptually getto a holistic policy.
allocates where taxes are paidbased on consumption.
(26:21):
But this is building this littlepiece that's really complex onto
an existing superstructure thatmostly looks at where corporates
have their headquarters andtheir workers and R& D and
production and such.
Kyle Hulehan (26:36):
yeah, it's certainly adding a lot of
complexity onto it.
and as we're explaining this andworking through it, you can just
see how complex and complicatedall of this is.
So I think we can see that someof this does not work so well.
and as we're wrapping up here, Ihave this final question for
Alan, but Daniel, for free tojump in after he responds with
anything else, maybe you want toadd, Alan, where do you think
(26:59):
All of this is heading.
What's the future of the globaltax deal in pillar two?
And is there any hope for asolution?
Are there better ideas?
What do you got?
Alan Cole (27:09):
I think it's possible that, the global minimum tax
deal doesn't become truly globaland it remains, a project of,
Europe and some other OECDcountries, but not say, the big
economies of China, India andthe U.
S.
I don't think that outcome isnecessarily, Necessarily means a
(27:33):
total failure, because it doesmean that European, countries,
would be, able to cartelize alarge region and, keep
competitive, pressures from, taxrates going too low, which is an
objective that they want, at thesame time, it isn't really like
the United States, or for thatmatter, many other large
(27:54):
countries that have been sloweron pillar two.
It's not like the United Statesis really the problem that
Europe was attempting to solvein pushing for the global
minimum tax the United States wethink of it as a low tax
country, and it is on personalincome, but on corporate income,
(28:14):
the United States really hasn'tbeen a driver of tax
competition.
In fact, it's been a bit of theopposite because it has such a
strong economy, such a largeeconomy, so much leverage.
over, even the largestcorporations, it's been able to
sustain, high corporate incometax rates, 35 percent before
(28:35):
2017 and still 21 percent after.
that's above by a considerableamount, the 15 percent global
minimum.
so an absence of, U.
S.
participation, does not reallyimply that.
The U.
S.
Would be pursuing, say, a taxhaven strategy.
that, costs Europe.
(28:56):
It's, tax base.
that's not really somethingthat, the European Union has to
worry about.
And so I think, accepting apartial win is one of the
possible outcomes here, for,European policy makers.
it's also possible that,Especially if you've got, a very
strong result for the U SDemocrats, in the upcoming 2024
(29:19):
election, they might decide,it's best to just not haggle
over, slight differences andinstead, become more fully,
committed.
Compliant with pillar two.
And in that case, hopefully youwould use that as an
opportunity, to simplify andknock out some U.
S.
Provisions so that, over theshort run, there's change and,
(29:39):
and U.
S.
Firms have to get used tosomething new, but in the longer
run, they might be able to say,at least our reporting at least
our definitions of Things arestandardized with some of the
other larger economies, and thatcould provide some upside
Daniel Bunn (29:55):
Yeah, and I'll just, Kyle, I appreciate your
patience with the detail inthis, in this call and admit
that Alan and I both areregularly scratching our heads
looking at how this all cametogether and trying to
understand the justificationsbecause some of the results are,
Just, so complex and contrary tothe initial, goal or we see it
(30:18):
that way.
and it makes it for, a very,stimulating intellectual
exercise, but one that requiresa lot of patients just trying to
figure out like what is actuallyhappening here and what did
policymakers, intend.
And then once you get throughthat, The kind of full picture
you're able to step back andsay, Wait, none of this really
makes any sense.
Kyle Hulehan (30:39):
You know, it's funny, I was doing a lot of prep
for this podcast today.
And I was rereading a lot of thegreat articles you guys have
written on this stuff.
And I kept getting to theconclusion.
And I was like, Oh, they're justsaying, this doesn't make sense.
We're confused.
This is challenging.
This is unnecessarilycomplicated.
And that was like the theme ofall of this.
And I think the theme of this aswe've seen it throughout.
(31:00):
And, and yeah, it does requirepatience.
Cause you're like, what's goingon?
I don't quite get it.
so yeah,I'm right there with youand I have no problem being
patient, especially when youguys are on here being so
eloquent and,look, hey, zombiescame up a few more times than I
expected, but I appreciate youguys being on the show today.
And I just want to give you guysone last runway, each of you to
just plug anything you'reworking on right now.
(31:21):
That's always how we kind ofwrap things up.
Daniel Bunn (31:22):
Yeah, so I've got a couple of opportunities to speak
to some groups coming up, andmost of what I'm doing is
collecting a lot of the workthat we've been doing focused on
2025 and try to make sure thatit connects.
with the various audiences sothat they can understand the
stakes of the game and some ofthe ways that they can think
through, pro growth policyoptions that kind of support the
(31:48):
principles that we espouse.,
Alan Cole (31:50):
and I'll be first looking to Canada and it's
digital services tax.
These are, uh, kind of almostpillar 1, proto pillar 1 taxes,
but assessed individually and adhoc by a variety of countries.
And, There's a good case to bemade that these are
(32:10):
discriminatory against U.
S.
companies and in the case ofCanada in particular, that's
especially of concern becauseCanada has a free trade
agreement with the U.
S.
And if there's 1 thing we'velearned today, it's.
It's definitely that tax policykind of bleeds into trade
policy, and some of these taxeslook an awful lot like tariffs.
(32:32):
And I expect that we'll see somecomplaints to that effect about
the Canadian tax.
Further down the line, I'll belooking at the U.
S.
response to Pillar 2, and howthe U.
S.
international policy haschanged.
Provisions could be changed inthe upcoming tax reform cycle.
(32:53):
We think it's likely thatthere's going to be a tax reform
bill or some kind of tax bill inthe next Congress.
And so there's an opportunity tolook at the international
provisions then, and I'll betrying to get a bit of a head
start on that.
Kyle Hulehan (33:08):
Gentlemen, thank you for being on the show today.
Daniel Bunn (33:11):
Thanks,
Alan Cole (33:12):
you.
Kyle Hulehan (33:16):
This has been another episode of the deduction
to learn more about the taxfoundation and the deduction.
Visit us at taxfoundation.
org slash podcast.
You can follow us on Twitter,Facebook, and LinkedIn at tax
foundation.
If you've been enjoying our showand want to help us grow, please
leave a five star review onApple Podcasts, Spotify, or
(33:38):
wherever you get your podcasts.
It helps others find the show.
And if you didn't enjoy thededuction, well, keep it to
yourself.
Another way you can support ourwork is by donating to the Tax
Foundation on our website.
Thank you all for listening, andwe'll see you next time.
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!