Law360 Quotes Peter Barnes on GILTI and Pillar Two

The U.S. measure for global intangible low-taxed income will likely remain out of sync with an international minimum tax agreement now that legislative windows have closed without key GILTI changes, raising technical questions about how the two regimes will interact.

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It's unlikely that foreign governments will simply accept how U.S. companies apportion GILTI taxes on their returns, according to Peter Barnes, former senior tax counsel at General Electric Co. who is now of counsel at Caplin & Drysdale. Rather, foreign governments will want audits and cross-border information exchanges to figure out how a company calculated its GILTI liability under U.S. rules and how it apportioned those taxes to its affiliates around the world, he said.

"Administration of the rules is going to require one of two things: either everybody trusts everybody, which I don't think is likely, or just hellacious audits and information exchange," Barnes said.

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No country, including the U.S., wants to move first on Pillar Two, according to Barnes at Caplin & Drysdale. However, once a critical mass of countries moves forward, U.S. companies will ask Congress to conform GILTI to the Pillar Two rules, he said.

As Barnes saw it, it's unlikely that the U.S. won't ultimately conform to Pillar Two, in part because of the complexity U.S. companies would face in computing their GILTI taxes under Pillar Two rules for the rest of the world. In addition, keeping GILTI as is means the U.S. would forgo some revenue under Pillar Two, he said.

"Not today, not tomorrow, but I think the U.S. will join Pillar Two if the rest of the world gets critical mass," he said.

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