Tax Update: Is Pillar Two About To Mirror GILTI?

One of the core commitments of the G7's June announcement on the global minimum tax was to address any substantial risks of an uneven playing field under the "side-by-side solution". This commitment acknowledges that although the G7 countries were satisfied that the existing US rules for ensuring a minimum level of tax is paid by US headquartered groups were sufficiently robust, differences in the design of the US rules and the Pillar Two rules create risks for unequal treatment between groups depending on where they are headquartered.

One of the main design differences that results in different outcomes under the US rules and the Pillar Two rules is that the US rules apply on a blended basis (i.e., by testing the effective tax rate across all non-US subsidiaries, blending high-taxed subsidiaries and low-taxed subsidiaries). In contrast, the Pillar Two rules apply on a jurisdiction-by-jurisdiction basis.