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Forbes
13-05-2025
- Business
- Forbes
Still At The Table: Updates On The OECD Global Tax Project
CANADA - 2025/02/07: In this photo illustration, the Organisation for Economic Co-operation and ... More Development (OECD) logo is seen displayed on a smartphone screen. (Photo Illustration by Thomas Fuller/SOPA Images/LightRocket via Getty Images) In this episode of Tax Notes Talk, Tax Notes chief correspondent Stephanie Soong discusses how the Trump administration's tax priorities have been shaping negotiations on the OECD's two-pillar project. Tax Notes Talk is a podcast produced by Tax Notes. This transcript has been edited for clarity. David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: OECD update — pillars, tariffs, and the path forward. When President Trump first took office back in January, he announced that the U.S. would be pulling out of the OECD's international corporate tax reform deal. Since then, however, the U.S.'s position has changed a few times as the Trump administration defines its tax priorities. Meanwhile, the EU has been working to find a solution to the U.S.'s concerns that could allow the two pillars to be implemented. So what role will the U.S. play in ongoing negotiations, and how is the OECD continuing to develop its international tax framework? We'll link to previous coverage in the show notes, but here to bring us up to date is Tax Notes chief correspondent Stephanie Soong. Stephanie, welcome back to the podcast. Stephanie Soong: Thanks for having me again. Always a pleasure. David D. Stewart: So why don't you bring us up to speed on what's happened since we last checked in on pillar 2. And just a note before we get started: We recorded this on May 7, prior to the announcement of a possible trade deal with the United Kingdom. Stephanie Soong: Well, the OECD published another pillar 2 guidance package January 15, which included several items, including updated GLOBE information return and clarifications about how MNE [multinational enterprise] The package also contained a central register of legislation with transitional qualified status, meaning measures that have undergone a fast-track process to ensure they're consistent with the OECD's global minimum tax rules during a transition period. The OECD also published a multilateral competent authority agreement and commentary to facilitate the centralized filing and exchange of GLOBE information returns between tax administrations. But then came the president's January 20 memorandum ordering the Treasury secretary and the U.S. trade representative to come up with proposals for "protection from discriminatory and extraterritorial tax measures." And a report was submitted to the White House in March, although the report has not been made public. I've tried to get this report and have not been able to get it, but once I do — if I do — I will report on it for sure. So you mentioned that the U.S. pulled out of this deal. So the memorandum did say that "the secretary of the Treasury and the permanent representative of the United States to the OECD shall notify the OECD that any commitments made by the prior administration on behalf of the United States with respect to the global tax deal have no force or effect within the United States absent an act by Congress adopting the relevant provisions of the global tax deal." So many people interpreted this memorandum to mean that the Trump administration was withdrawing from the two pillar global tax reform plan. They may have thought that, but to me, it seemed that it was just reinforcing that there's a new sheriff in town. There's a new sheriff in town and what the previous sheriff did no longer applies, which is fair because it's a new administration. PARIS, FRANCE - DECEMBER 7: President-Elect Donald Trump reacts during his meeting with Prince ... More William, Prince of Wales at the Embassy of the United Kingdom's Residence on December 7, 2024 in Paris, France. Donald Trump was among the wave of foreign dignitaries descending on Paris this weekend to attend a reopening ceremony at Notre-Dame Cathedral, more than five years after it was damaged in a major fire. (Photo by) So anyway, shortly after that, on January 22, House Republicans reintroduced the Defending American Jobs and Investment Act, which is largely seen as an anti-pillar 2 bill. The bill would increase U.S. tax rates on foreign companies and investors if their companies impose extraterritorial measures on U.S. companies like the undertaxed profits rule. David D. Stewart: So what's happening with the other pillar going on right now? What's happening with pillar 1? Stephanie Soong: There hasn't been much movement at the OECD on pillar 1, which if you'll recall, consists of amount A, the taxing right, and the withdrawal and prevention of digital services taxes and other similar measures, and amount B, which is an optional simplified and streamlined transfer pricing approach to price baseline marketing and distribution transactions. And negotiations are continuing on a mandatory version of amount B. There was a lot more discussion of DSTs in the context of trade rather than pillar 1. Over the past few months, the threat of trade wars between the U.S. and the rest of the world started looming large, particularly with the Trump administration's plan to impose tariffs on countries with which the U.S. has trade deficits in goods. As these trade tensions grew, there was some discussion in the Trump administration about digital services taxes as a potential trade barrier. And if you remember, the U.S. really hates DSTs and other kinds of measures like that, because in its view, these kinds of taxes unfairly target U.S. companies. Pillar 1 of the reforms was supposed to roll back those DSTs and similar measures. During this time, there was some speculation that some countries were reconsidering their DSTs in response to potential tariff threats. There were rumors that the U.K. was considering amending or abolishing its DST as it tried to secure a carveout from the tariffs, but so far, the U.K. government has been vague on whether DST changes were even under consideration. And the Italian prime minister met with Trump in April, and they said in a joint statement that they "agreed that a non-discriminatory environment in terms of digital services taxation is necessary to enable investments from cutting-edge tech companies." It wasn't clear whether this meant Italy was planning on eliminating its DST. In January Italy did eliminate the €5.5 million domestic revenue threshold for its DST regime, and that expanded the scope of the tax to all large companies with Italian revenue from the provision of digital services. And meanwhile, in India, the government abolished their 6 percent equalization levy at the end of May. And at first, the Indian finance minister said abolishing the levy was meant to "address the uncertainty in international economic conditions," which prompted speculation that India was responding to the tariff threats. But the finance minister reportedly said that the levy's withdrawal was part of the process of rolling back the 2 percent equalization levy, which was abolished in 2024. While some countries appear to reconsider their DSTs, lawmakers in some jurisdictions seem to move in favor of introducing DSTs — like in Australia, the Green party proposed a 3 percent DST in March. And there was also talk in April from the European Commission about an EU-wide retaliatory tax on U.S. digital advertising revenue. And the South Centre in Geneva also urged developing countries to adopt DSTs and put up a united front against external threats against those measures, which I took to mean as trade threats. European flags fly at half-mast during a meeting of EU energy ministers to find solutions to rising ... More energy prices at the EU headquarters in Brussels on Septembre 9, 2022, one day after the death of Britain's Queen Elizabeth II. - Queen Elizabeth II, the longest-serving monarch in British history and an icon instantly recognisable to billions of people around the world, has died aged 96, Buckingham Palace said on September 8, 2022. (Photo by JOHN THYS / AFP) (Photo by JOHN THYS/AFP via Getty Images) And on amount B, we saw some more countries, like Norway and Turkey, saying they won't adopt the framework at the moment. And the co-chairs of the OECD inclusive framework published a statement in January that pretty much said that negotiations on pillar 1 centered mostly on trying to overcome differences between jurisdictions on the mandatory version of amount B. David D. Stewart: So turning back to what we're seeing out of the U.S. Since that memo in January, have we seen the U.S. actually leaving the OECD's negotiating table? Stephanie Soong: Interestingly enough, the OECD inclusive framework met in Cape Town, South Africa, in early April and produced a statement that pretty much confirmed that the talks were continuing on pillar 1 and pillar 2. Nothing changed from the January statement regarding pillar 1, but what was significant was that the United States was among the inclusive framework members that approved the statement, signifying the U.S. was still at the negotiating table. Manal Corwin, OECD's tax head, said at the Pacific Rim conference in mid-April that members were interested in finding a path forward with the United States that would address its concerns with pillar 2. And as I probably mentioned on this podcast, the U.S. GILTI [global intangible low-taxed income] regime partly inspired the pillar 2 income inclusion rule, but as far as key differences, one big one is that the GILTI rules apply on a blended worldwide basis, while the income inclusion rule applies on a jurisdictional basis. David D. Stewart: Do we have a sense of what the U.S. wants to achieve in these negotiations? Stephanie Soong: Well, a Treasury official said during a speech at the Pacific Rim conference that the U.S. priority is to find a politically acceptable and stable coexistence between the GILTI regime and the pillar 2 regime. And what coexistence means is yet to be determined. But there was an interesting moment after his speech when he clarified to us reporters that he did not say equivalence during his speech. So the U.S. apparently is not looking for equivalence between the GILTI regime and pillar 2. We really don't know yet what the U.S. wants or what it told the inclusive framework it wants, but my colleague Elodie Lamer was the first to report that the Polish EU Council presidency had set out options to help smooth things over with the United States. David D. Stewart: What sort of options are they proposing? Stephanie Soong: Well, they include revisiting the GLOBE rules on the treatment of tax credits because U.S. incentives like the R&D [research and development] credit aren't considered qualified refundable tax credits, which could lead to a lower effective tax rate and a possible pillar 2 tax abroad for U.S. companies. And another option is to limit the applicability of the UTPR — the undertaxed profits rule — possibly by extending the transitional undertaxed profits rule safe harbor or amending the pillar 2 directive to roll back the UTPR. Then there's the option of giving the U.S. GILTI regime equivalence to the IIR. But like I said before, the Treasury officials seemed to indicate that that was not what they were looking for. EU member states reportedly indicated their attachment to the UTPR's integrity and considered any changes to the pillar 2 directive to be premature. But meanwhile, business stakeholders have been increasingly calling for pausing the application of the EU's UTPR. David D. Stewart: So what should we be looking for next in these negotiations between the OECD and the U.S. and other nations? Stephanie Soong: So what I'm looking for myself is more information about the so-called path forward on pillar 2 with the United States and more updates on pillar 1, like the U.S. draft regs for amount B. Another thing I'm looking for is countries adopting pillar 2 rules and amending their existing pillar 2 rules. I'm looking out for whether countries are going to amend or abolish their existing DSTs or introduce new ones since they'll be targeted by tariffs anyway. And as always, pillar 2 guidance from the OECD. David D. Stewart: Well, it seems like there's going to be plenty to keep an eye on. And Stephanie, thank you for bringing us up to speed on all of it. Stephanie Soong: No problem. Thank you so much for having me on.
Forbes
11-05-2025
- Business
- Forbes
The Danger Of Relying On AI For U.S. Tax Advice
U.S. international tax questions demand precise, up-to-date expertise. Professional judgment remains ... More critical. AI simply doesn't have anything close. Artificial intelligence tools such as ChatGPT and Grok are becoming household fixtures with Americans increasingly turning to them. These tools are being used to find answers on everything from cooking recipes to complicated tax questions. How reliable is AI for taxpayers seeking tax advice, particularly on U.S. international tax issues? While AI has laudable capabilities and provides great speed in its responses, the reality is that currently in the U.S. international tax area (indeed, in the tax area generally), AI often delivers inaccurate or incomplete information. Since U.S. international taxation is such a highly specialized field, AI can leave users at risk of costly mistakes. For now, a thorough and proper tax analysis requires the expertise of a seasoned professional who can understand the interplay of the tax law, Treasury regulations, IRS notices and rulings, court cases, and international tax treaties. There is an undeniable appeal of AI in the complicated U.S. tax space that often overwhelms even tax professionals, let alone the lay person. With its speedy answers that are generated so easily and for free, the AI tool seems a godsend in the complicated tax world. For the more straightforward and typically domestic (as opposed to international) tax issues, these tools might be sufficient to point users in the right direction. The cracks in AI's armor start to show when tackling U.S. international tax matters. This is not only because international tax is an area rife with complexity but also because it is highly dynamic. Aside from the technical aspects involved, U.S. international tax is shaped by frequent regulatory updates, IRS interpretations, and judicial decisions. AI struggles to keep pace. Take for example, the proliferation of IRS Practice Units, many of which focus on international tax matters. Practice Units are internal IRS training materials for examiners. The IRS just started issuing these in 2020. As international tax issues are becoming more and more common in today's global economy the IRS has had to be proactive training its agents to understand them and catch noncompliance. The Units are publicly available on but are not binding and cannot be used as precedent. From January to the first week of May 2025 the IRS has already issued 35 such Units. Of these, 22 cover complicated international tax topics such as 'French Foreign Tax Credits', 'Base Erosion Anti-Abuse Tax', 'Foreign Tax Credit Computations', 'Foreign Tax Credit Limitations', 'General Deductions of a Foreign Corporation Engaged in U.S. Trade or Business (Non-Treaty)', 'Reduced Foreign Taxes Under Treaty Provisions' and many more subjects delving into technical international taxation. The Practice Unit resource is just one of many forms of tax guidance that is constantly evolving. The tax laws, regulations, treaties and updates may not be picked up by AI models resulting in incorrect or incomplete answers. The problem of AI's questionable accuracy has its roots in how AI generates its responses. AI tools such as ChatGPT and Grok rely on so-called 'large language models' trained on a huge and diverse amount of text that includes online forums, books, articles, websites and public records. This training results in an end-product that sounds like highly intelligent answers cloaked in perfect conversational text. Critically, this alone is not sufficient for a tax analysis, and it is all too easy to forget that AI cannot think independently. Professional judgement remains critical. AI tools do not guarantee accuracy. This is particularly so in nuanced areas such as international tax which demands precise, up-to-date expertise. There's the significant problem of 'simplexity'. The tax law is highly complex. If AI presents the law as if it is simple, this can result in presenting the law as something different from what the law actually is, as has been encountered with the IRS chatbot 'Interactive Tax Assistant'. Other problems involve misinterpretation, relying on outdated sources, entirely missing out on important information, conflating similar but distinct international tax concepts (e.g., it might confuse the Foreign Tax Credit with the Foreign Earned Income Exclusion) and even 'hallucinating'. My own experiences with an AI 'hallucination' occurred recently. The first, when I asked whether there was an exception in the FBAR filing rules for non-U.S. accounts owned by a foreign government entity. I was examining whether Pope Leo XIV, a U.S. citizen, might have a possible FBAR obligation with regard to accounts at the Vatican Bank. AI incorrectly reported that such an exception existed (the exception applies only to foreign financial accounts of any governmental entity of the United States). Another incident occurred when I asked if the U.S. had negotiated totalization agreements with the countries of Ecuador or Costa Rica and received an (incorrect) answer in the affirmative. No such totalization agreements exist. Other tax professionals testing AI have found incorrect answers, in one instance 100% of the time. Even though answers were on the right track, AI failed to catch the critical nuances, of which the U.S. tax laws are replete. Any of these missteps could lead to incorrect answers or calculations, potentially triggering an IRS audit and penalties. The problem, especially for the layperson, is that the AI generated responses sound so good, that they are taken at face value. Getting things wrong, especially in international tax compliance which remains a top IRS enforcement priority, can lead to serious consequences. Errors in reporting foreign income or assets involves stiff penalties. For example, there is a $10,000 penalty for an untimely FBAR or foreign information return such as Form 8938 or 5471; a 40% accuracy-related penalty on unpaid tax for errors involving foreign assets. Reliance on AI and AI chatbots will not suffice as 'reasonable cause' to avoid imposition of IRS penalties. Last year, the U.S. Taxpayer Advocate Service cited a Washington Post review finding that AI chatbots from leading tax return preparation companies gave inaccurate tax advice up to 50% of the time on complex tax questions. Beyond the significant financial costs that can result from inaccurate AI tax advice, taxpayers face the stress of audits and the burden of correcting mistakes. Currently, AI has serious shortcomings when it comes to U.S. international taxation. Experienced international tax professionals occupy an irreplaceable role and unlike algorithms, they specialize in deciphering the many nuances involved in international tax matters. The top professionals stay current on IRS guidance, monitor treaty updates, and analyze case law on a regular basis. They tailor tax advice to a client's unique situation. Doing this often requires using professional judgment because a one-size-fits-all approach does not work in the international tax world. Tax professionals strategize and provide all-important context that can optimize the tax outcome for each particular case. AI has yet to master any of these skills; it has a long way to go. This isn't to say AI has no place in the world of international tax planning. It can certainly be a useful time-saving tool and starting point for a general explanation of unfamiliar tax concepts. Relying on AI alone, however, is a gamble not worth taking. In time, as AI inevitably evolves, its accuracy and abilities will develop, but at the moment AI is not a substitute for a qualified tax professional. Stay on top of tax matters around the globe. Reach me at vljeker@ Visit my U.S. tax blog
Times of Oman
06-05-2025
- Business
- Times of Oman
Forum discusses overall development in tax system
Muscat: The second edition of the Tax Forum 2025, organized by the Tax Authority in Muscat on Tuesday, discussed ways to introduce comprehensive developments in the tax system, in transfer pricing and in the implementation of value-added tax (VAT) in the Sultanate of Oman. The forum saw the presentation of working papers on the most significant structural updates within the Tax Authority. The updates included the consolidation of operational efficiency and improvements to electronic services aimed to facilitate taxpayers' compliance. The presentation also showcased new strategic initiatives launched by the Authority and aspects of enhancing cooperation with international tax organisations and sharing expertise and best practices in the field. Specialised experts gave detailed accounts of outstanding tax developments at the regional level and the potential impacts of such developments.
Times of Oman
06-05-2025
- Business
- Times of Oman
Tax Forum discusses development in tax system
Muscat: The second edition of the Tax Forum 2025, organized by the Tax Authority in Muscat today, discussed ways to introduce comprehensive developments in the tax system, in transfer pricing and in the implementation of value-added tax (VAT) in the Sultanate of Oman. The forum saw the presentation of working papers on the most significant structural updates within the Tax Authority. The updates included the consolidation of operational efficiency and improvements to electronic services aimed to facilitate taxpayers' compliance. The presentation also showcased new strategic initiatives launched by the Authority and aspects of enhancing cooperation with international tax organizations and sharing expertise and best practices in the field. Specialized experts gave detailed accounts of outstanding tax developments at the regional level and the potential impacts of such developments.
