Side-by-side… Until It Isn’t: The Global Minimum Tax Under Strain

The side-by-side package released by the OECD in early January was welcomed by the international tax community and heralded as demonstrating renewed commitment to international tax cooperation.  While getting the agreement over the line was a triumph for international cooperation, that narrative misses what the side-by-side package means for international tax.

In our view, the side-by-side package concedes to tax competition (even if that concession is currently limited) and puts the global minimum tax framework under strain.

We see the potential for strain on the Pillar Two framework in two features.  First, the side-by-side package dilutes the primary enforcement mechanism under the original framework, namely the undertaxed profits rule (the “UTPR”).  That dilution means countries may revisit how they have implemented the global minimum tax.  Second, the side-by-side package actively revives tax competition by adopting a new permissive treatment for qualified tax incentives (“QTIs”