Taxes after the 2024 storm: is there a way back? The global impact of the One Big Beautiful Bill Act

A report on a session at the IBA’s 15th Annual London Finance and Capital Markets Conference held on 26 and 27 January 2026

Chair
Jodi J Schwartz, Wachtell, Lipton, Rosen & Katz, New York

Panellists
Annabelle Bailleul-Mirabaud, CMS Francis Lefebvre, Paris
Guillermo Canalejo, Uría Menéndez, Madrid
Morgan Klinzing, Troutman Pepper Locke, Philadelphia
Florian Lechner, A&O Shearman, Frankfurt
Margriet Lukkien, Loyens & Loeff, Amsterdam
Joshua David Odintz, Holland & Knight, Washington, DC
Gregory Price, Macfarlanes, London
Leonard J Teti, Cravath, Swaine & Moore, New York

Reporter
Adnand Sulejmani, Ashurst, Luxembourg

Introduction

This roundtable discussion titled ‘Taxes after the 2024 storm - Is there a way back? The global impact of one big, beautiful bill’ was held as part of the IBA’s 15th Annual London Finance and Capital Markets Tax Conference. The panel brought together tax experts from the United States, the United Kingdom and various European Union Member States to examine recent developments in international tax policy, addressing the future of Organisation for Economic Co-operation and Development’s (OECD) Pillar Two framework and the G7 side-by-side system, the future of Pillar One and digital services taxes (DSTs), retaliatory taxation dynamics under Sections 891, 896 and 899, potential EU responses through state aid rules, the EU Anit-Tax Avoidance (ATAD) Directive, transfer pricing, joint tax audits, perspectives on taxing US multinationals and the re-emergence of tax competition across jurisdictions.

Panel discussion

Background: the US tax system and Pillar Two

The panel traced how the US system evolved to accommodate international tax reforms. The US introduced the Global Intangible Low-Taxed Income (GILTI) as its mechanism for taxing active foreign income, which was the first effective minimum tax system for foreign income globally. The Build Back Better Act in 2021–2022 attempted to convert the GILTI into a per-country system to align more closely with Pillar Two, but that effort failed to secure enough Democratic votes. 

Key US concerns related to Pillar Two included:

• research and development (R&D) credit treatment: bipartisan frustration that the US R&D credit was treated less favourably than refundable credits in other countries (eg, the UK research credit); and
• the Undertaxed Profits Rule (UTPR): Republicans expressed concern that the Biden administration had ‘boxed in’ Congress by agreeing to rules like the UTPR. 

The Section 899 threat and G7 side-by-side agreement

In response to these concerns, a proposal for Section 899 emerged – a retaliatory tax applicable to jurisdictions with a UTPR, DST or other discriminatory/extraterritorial taxes. On day one of the Trump administration in 2025, executive orders declared the prior OECD agreement ‘null and void’, effectively resetting the negotiations. 

This pressure led to the creation of the G7 side-by-side agreement, which rests on four principles:

1. the US system will operate ‘side by side’ with Pillar Two;
2. incentive-based tax credits will be reconsidered;
3. Pillar Two needs simplification for both tax administrators and taxpayers; and
4. concerns about a level playing field must be addressed. 

The side-by-side safe harbour

The OECD released the side-by-side framework, which includes a safe harbour that requires four conditions to be met:

1. a domestic corporate tax rate of at least 20 per cent;
2. a corporate alternative minimum tax (QDMTT) of at least 15 per cent;
3. a worldwide tax system for foreign operations (active and passive income) at a minimum 15 per cent rate; and 
4. a foreign tax credit for qualified domestic minimum top-up taxes (QDMTT). 

The system was required to be in place by 1 January 2026. Currently, the US is the only country listed as qualifying for this safe harbour. Qualifying for the safe harbour turns off the Income Inclusion Rule (IIR) and the Undertaxed Payments Rule (UTPR), although QDMTTs remain applicable. The side-by-side agreement criteria appear to be ‘written for the US’, meaning it is unlikely other countries will qualify.

Implications for US and EU companies 

EU companies considering relocating to the US

The panel noted that EU companies are increasingly asking about relocating to the US, a reversal from the pre-2017 era of ‘inversions’, where US companies moved offshore. This shift is driven by factors including the Tax Cuts and Jobs Act’s (TCJA) reduction of the corporate tax rate from 35 per cent to 21 per cent, the GILTI regime taxing foreign income at lower rates and, now, the existence of the side-by-side agreement. The primary motivations for such a decision are, however, often non-tax related, such as seeking a US stock listing or share price uplift. 

EU multinational perspective

From the EU perspective, there is a sense of unfairness that US multinationals benefit from the side-by-side agreement while EU multinationals remain subject to full Pillar Two compliance, with significant compliance costs, even where the actual top-up tax amounts are low. 

EU implemention challenges

The EU has faced a challenge because the side-by-side agreement is not explicitly included in the EU Pillar Two Directive and amending the Directive requires unanimous approval from all 27 Member States. A ‘creative approach’ was adopted to read the side-by-side agreement into Article 32 of the Pillar Two Directive (the safe harbour clause), even though Article 32 was originally intended for administrative exemptions rather than permanent, broad exemptions. 
The European Commission published a statement on 12 January 2026, confirming that this interpretation is acceptable, and Cyprus (the only EU Member State that is not an Inclusive Framework member) issued a separate statement of support. 

Potential legal challenges

Several legal concerns have been raised by academics:

• the Meroni Doctrine: a 1958 judgment issued by the Court of Justice of the European Union holding that only clear, defined executive powers can be delegated to institutions outside the EU, not broad discretionary powers. Political responsibility for the Pillar Two rules has effectively been shifted to the OECD;
• EU state aid: the side-by-side package could be viewed as providing a ‘selective advantage’ to US multinationals. However, the EU Commission itself negotiated the agreement and signed off on it, so it is unlikely to investigate; and
• litigation by EU multinationals: some EU multinationals may attempt to challenge the side-by-side agreement in court to obtain a similar treatment. Any litigation would take years and most likely would not have retroactive effect for US multinationals.

DSTs

Background

The OECD raised concerns in 2015 (BEPS Action 1) about taxing digital economy companies that operate without a physical presence and rely on user data and intangibles. After the EU failed to reach consensus on a proposed three per cent DST directive in 2018, individual countries introduced unilateral DSTs, namely France, Spain, Austria, Italy and the UK, with France being the first country to do so at three per cent in 2019. These taxes were intended to be provisional but have persisted and have exceeded revenue projections. In the UK, the proceeds from the tax reach about £1bn. 

The US approach

The first Trump administration used trade remedies as bilateral pressure against DSTs. The current approach focuses on reaching bilateral and multilateral solutions. The Pillar One Model Convention (which would address DSTs multilaterally) is considered 'dead for now' – the Senate would have difficulty ratifying a multilateral convention requiring a two-thirds majority. 

Historical use of tax threats

The US has used tax threats before:

• Section 891 (1930s): passed to pressure France to ratify its tax treaty and France complied within six months; and
• Section 896: another historical example of an effective tax leverage to pressure other countries to obtain certain desired outcomes. 

The panel noted that Section 899 remains a threat in situations where countries are slow to implement the side-by-side framework. 

Substance-based tax incentives safe harbour

The side-by-side package introduced a substance-based tax incentives safe harbour, applicable upon election from 2026, designed to address the unfavourable treatment of certain (US) tax credits under Pillar Two. 

Under the original Pillar Two rules, non-refundable tax credits could reduce taxes in the numerator when computing the effective tax rate, while qualified refundable tax credits (refundable within four years) could increase income in the denominator, which led to more favourable treatment. The new safe harbour neutralises the impact of ‘qualified tax incentives’ (expense-based or production-based credits, irrespective of whether they are refundable or not) up to a substance cap calculated as 5.5 per cent of local payroll or depreciation expenses, whichever is greater. 

The panellists indicated that this mechanism is largely tailored for US tax credits and is unlikely to be widely used by the UK, Germany or the Netherlands, whose existing incentives (like the UK patent box or Dutch innovation box) do not fit this structure. However, it could be used with respect to the French research tax credit.

EU competitiveness and simplification

The panel discussed the broader theme of EU complexity reducing competitiveness. The EU Commission had previously taken a ‘role model’ approach with increasingly complex rules (eg, ATAD, Council Directive (EU) 2018/822 or DAC6, state aid rules and Pillar Two) but is now rethinking this stance. 

Recent positive developments include dropping:

• a proposed additional interest deduction limitation;
• the Unshell Directive; and
• the Transfer Pricing Directive. 

However, the Business in Europe: Framework for Taxation (BEFIT) is still being discussed, although panellists view it as ‘a dead horse’. The Faster and Safer Tax Relief of Excess Withholding Taxes (FASTER) Directive (streamlining withholding tax relief) is proceeding and comes with intensive reporting obligations. 

The EU’s 28th Regime for innovative companies was announced at the World Economic Forum in Davos, with proposals expected in March 2026. It would allow entity formation within 48 hours and includes favourable tax measures. 

EU anti-coercion instrument

The panel discussed the EU’s Anti-Coercion Instrument (December 2023), which allows the EU to impose economic and non-economic measures against non-EU states that are found to be using economic coercion. Available measures include tariffs, trade restrictions, foreign direct investment (FDI) measures and intellectual property (IP)-related measures. 

However, the instrument is slow: it takes four months to identify coercion, six months for the EU Commission to propose countermeasures and eight weeks for Council approval. Whether the EU Commission will actually use such aggressive measures against the US remains uncertain. 

Country-specific enforcement action

Germany

German tax authorities have begun taking a more aggressive approach to hybrid structures. Historically, dividends from German corporations to US recipients received treaty relief regardless of check-the-box elections. Now, authorities are taking the position that if the German entity is checked as transparent/disregarded, the US recipient does not ‘receive dividends’ for treaty purposes, meaning that withholding tax applies but treaty relief may be denied. 

UK

The UK uses interest-stripping rules (disallowing internal debt funding) and transfer pricing challenges via the Diverted Profits Tax (a surcharge that incentivises companies to settle transfer pricing disputes). 

THE NETHERLANDS

Tax audits have increased over the past decade but apply to all multinationals, not just US companies. The Netherlands is unlikely to implement a targeted audit policy against US multinationals specifically.

The 2029 stock take

The side-by-side agreement includes a commitment to carry out a 2029 stock take to assess both the side-by-side arrangement and Pillar Two generally. The panellists expressed scepticism about its usefulness:

• the 2024 return is due in 2026, 2025 in 2027 and the first side-by-side return in 2028, leaving little data for analysis;
• no Pillar Two dispute resolution mechanism exists yet, risking the occurrence of double taxation; and
• it will likely be a ‘political check-in’ rather than a substantive review. 

The agreement also includes a migration concern: if companies migrate en masse to the US, other countries may object. 

China and Brazil

China and Brazil were noted as major economies that have not adopted Pillar Two. The panellists expressed doubt that China would try to become compliant, noting that Chinese clients historically have not responded to extraterritorial compliance pressures the way US and EU companies have. Brazil could theoretically attempt to qualify for the side-by-side arrangement. 

The long-term outlook for Pillar Two

The panel concluded with reflections on Pillar Two’s survival, namely that:

• the system’s reliance on consolidated financial statements to determine taxable income will be tested by audits;

• the US Corporate Alternative Minimum Tax (CAMT) (similar in concept) has been challenging to implement;

• US multinationals now face Pillar Two books, CAMT books, tax books and financial statements, which is described as ‘pretty much a nightmare’;

• compliance costs are high relative to the tax revenue generated; and

• the tax authorities will need their best international specialists to conduct audits.