Since the U.S. made clear in April its position that U.S.-parented groups should not be required to comply with both the Organisation for Economic Cooperation and Development (OECD) Pillar 2 global minimum tax and the U.S. minimum tax rules, the tax community has closely watched international discussions of a proposed "side-by-side" system. This would benefit U.S.-parented groups by removing burdensome and duplicative tax and compliance obligations and may also benefit foreign-parented groups operating in jurisdictions with a high effective tax rate through simplified compliance being considered in tandem with relief for U.S. groups. One potential byproduct of these negotiations is that their pace may drive a second tax reconciliation bill before the end of the year.

In June, when the Group of Seven (G7) announced an understanding with respect to the side-by-side system, Senate Committee on Finance Chairman Mike Crapo (R-ID) and House Committee on Ways and Means Chairman Jason Smith (R-MO) agreed to take the proposed section 899 international retaliation tax off the table in negotiations on the One Big Beautiful Bill (OBBB) to provide space for discussions regarding the side-by-side system. The G7 statement recognized that freezing action section 899 was crucial to providing a more stable environment for such discussions. Importantly, however, the chairmen expressed willingness to reconsider section 899, noting their readiness "to take immediate action if the other parties walk away from this deal or slow walk its implementation."

Last week, the OECD Secretary-General issued a positive report to the Group of 20 (G20) on the status of Pillar 2 discussions, providing for the first time a public timeline for resolution:

Technical work on design and impact is being undertaken... to explore the evidence base for the issues raised, and to find common ground. Further meetings are scheduled for the coming months, with progress continuing and hope for a solution acceptable to all members by the end of the year. (emphasis added)

The report also omits references to the proposed section 899 retaliation tax, which featured prominently in the Secretary-General's prior G20 report in July.
 
Whether the Pillar 2 discussion results in an acceptable solution to the concerns expressed by the U.S. and other countries – from both a substantive and timing perspective – is yet to be seen. Consistent with the chairmen's joint statement, if Congress becomes concerned that work on an acceptable solution is not proceeding fast enough, the specter of proposed section 899 retaliation, or some variation thereof, may be raised again.

The proposed section 899 presented a host of technical and policy issues that were debated in the OBBB process. Support for a renewed section 899 solution would almost certainly be limited to congressional Republicans wishing to provide backing to the U.S. Department of the Treasury in its international discussions, meaning a partisan attempt to pursue a budget resolution and another reconciliation bill could get underway. Such an effort and the substantial revenue generated from the section 899 proposal would undoubtedly raise consideration of the inclusion of tax relief provisions. An extension of the work opportunity tax credit and other provisions expiring at the end of the year would likely top the list, along with any priorities expressed by President Trump. Thus, if Pillar 2 discussions stumble and the section 899 proposal returns to the fore, a silver lining is that tax extenders and other tax relief may find a legislative vehicle in the form of another reconciliation bill.

A preferable path would be for Pillar 2 discussions to reach a positive resolution before the end of the year, providing relief to multinational groups within its scope, and for an alternative legislative vehicle to be found to address tax extenders and other worthy tax legislation. #TaxTake

Upcoming Speaking Engagements

Mike will speak at Practising Law Institute's Tax Strategies for Corporate Acquisitions, Dispositions, Spin-Offs, Joint Ventures, Financings, Reorganizations & Restructurings 2025 conference on October 22, and on October 27, he will preside over the afternoon sessions at the 60th Annual Southern Federal Tax Institute, of which fellow Tax Member George Hani is Program Chair.  

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