Peter Barnes Talks to Financial Times on Biden’s Tax Proposals and OECD Pillar Two

The U.S. played an instrumental role in encouraging 136 countries to sign up to a global tax deal tabled by the OECD last October and hailed as the most important tax reform in more than a century.

But over recent days, it has become clear that how Washington intends to apply one of two parts of the proposals - a minimum corporate tax floor of 15 per cent - is at odds with how the agreement is likely to work elsewhere.

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Peter Barnes, a tax specialist at the Washington law firm Caplin & Drysdale, called Congress's alteration of the Biden tax proposals "disappointing" but "certainly not fatal" to the deal.

One reason why is that, if the U.S. implements the 15 per cent minimum rate in the form detailed in the act and not the deal, then other tax authorities could potentially scoop up more revenue from US companies for themselves. That's because the deal features a complex mechanism that allows other countries to effectively impose a tax of up to 15 per cent on the income of a subsidiary located there if - as is the case of the U.S. - the home country of the parent corporation does not impose a top-up tax.

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Barnes agrees and thinks U.S. multinationals may eventually push Congress to apply Pillar Two in a form closer to that agreed at the OECD.

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