Christians & Shay: The Consistency Of Pillar 2 UTPR With U.S. Bilateral Tax Treaties

Allison Christians (McGill; Google Scholar) & Stephen E. Shay (Boston College; Google Scholar), The Consistency of Pillar 2 UTPR With U.S. Bilateral Tax Treaties, 178 Tax Notes Fed. 499 (Jan. 23, 2023):

In this report, Christians and Shay explain why the pillar 2 undertaxed profits rule would be consistent with U.S. bilateral income tax treaties, and they explore some of the reasons underlying claims that the UTPR is incompatible with those treaties.

Conclusion
The UTPR is not a tax on income, nor is it likely to be characterized as in lieu of a tax on income. Instead, it is a cash tax expense that can be collected in any manner and most probably is in the nature of an excise tax. Contrary to the claims of GOP lawmakers and other commentators, the better view is that the UTPR is not covered by existing tax treaties at all, so it cannot be said to conflict with their terms.

Given its role as a backstop to the coordinated efforts of pillar 2 countries to ensure that in-scope MNE groups pay a minimum ETR of 15 percent in all jurisdictions, it is possible — even likely — that after a transition period, countries will collect little if any UTPR. As a result, the priority of the United States ought to be to work cooperatively with fellow members of the inclusive framework to solve coordination issues with non-convergent U.S. tax rules as adoption of pillar 2 rules proceeds across jurisdictions.