The death of Pillar Two? Retaliation matters, efficacy and Latin America

Thaylee Figueroa
UF Levin College of Law, Gainesville

Report on a session at the 17th IBA/ABA US and Latin America Tax Practice Trends Conference in Miami

Thursday 19 June 2025

Session Chairs
Greg Featherman Weil, Gotshal & Manges, New York
Ana Cláudia Akie Utumi Utumi Advogados, São Paulo

Panellists
Manuel Alcalde Carey, Santiago
Mariana Díaz-Moro Gómez-Acebo & Pombo, Madrid
Francisco Carbajal SMPS Legal, Mexico City
Guillermo Teijeiro Bomchil, Buenos Aires
Eric Thompson Cañon Thompson, Bogotá
Priscila Vergueiro EY, São Paulo

Introduction

The session explored whether the OECD’s global minimum tax project – Pillar Two – can survive a markedly changed political landscape. Co-chairs Ana Cláudia Akie Utumi and Greg Featherman gathered panellists from Europe, the United States and six Latin American (LATAM) jurisdictions to test the regime’s efficacy, likely trajectory and practical impact on tax incentives across the region. Starting with Spain’s first-mover experience, the discussion moved to the proposed US ‘Section 899’ retaliation tax, examined alternative or partial approaches now spreading through Latin America, and closed with a candid debate on whether Pillar Two is merely ailing or truly at death’s door.

Panel discussion

Implementation of the OECD Pillar Two consensus – European experience – Spain

Mariana Díaz-Moro opened by discussing Spain’s December 2024 legislation that transposed the EU directive on minimum corporate taxation. Díaz-Moro explained that it is applicable to groups with consolidated revenue above €750m and operates through the income inclusion rule (IIR), under-taxed profits rule (UTPR) and a domestic minimum tax overlay. She highlighted the complexity of defining the group, calculating the effective tax rate (ETR) and handling carve-outs, but stressed that the first returns are due in June 2026. Although Spain and Europe now have legal certainty, she warned that the absence of the US, China and India leaves EU-headquartered groups facing higher compliance costs and potential competitive disadvantages.

The US approach towards Pillar Two

Featherman labelled the United States the ‘primary suspect’ in the possible demise of Pillar Two. He described the proposed Section 899, embedded in President Trump’s ‘Big Beautiful Bill’, as a retaliatory levy on foreign residents of jurisdictions that impose ‘unfair’ taxes such as the UTPR or a digital services tax. Both House and Senate versions would surcharge withholding on US-source payments, with rates ratcheting up to 20 per cent (House) or 15 per cent (Senate). Treaty benefits and the sovereign immunity regime of Section 892 would be ignored, although the portfolio interest exemption would survive to protect debt markets. Crucially, the Senate draft delays the effective date to January 2027, signalling that the provision is intended less to raise revenue than to force other countries back to the negotiating table.

Views from LATAM on the US approach

Turning to the LATAM region, Eric Thompson set the Colombian scene: a 35 per cent corporate rate, no US treaty and scepticism toward the base erosion profit shifting (BEPS) project since 2022. He predicted Bogotá would ‘do nothing’ on Pillar Two until the next administration.

Francisco Carbajal reported that Mexico, mindful of French experience with US retaliation, has limited itself to VAT on digital platforms; adoption of global rules is unlikely while Washington remains hostile.

Guillermo Teijeiro noted that Argentina lacks a digital services tax but applies aggressive source rules that could nonetheless be swept into Section 899’s ambit.

Manuel Alcalde observed that Chile, once an OECD model pupil, has paused implementation and could paradoxically emerge as a competitive haven, because it maintains a treaty with the US but no targeted minimum tax.

Finally, Priscila Vergueiro underscored Brazil’s unique path: a qualified domestic minimum top-up tax (QDMTT) from 2025 but no IIR or UTPR – adopted chiefly to protect revenue rather than embrace the OECD blueprint.

Alternative measures – Pillar Two-like measures or incomplete Pillar Two implementation

Vergueiro explained that Brazil’s QDMTT is not a safe harbour; it simply ensures Brazil collects any top-up tax itself. Whether a subsequent IIR will follow depends on politics and fiscal needs.

Teijeiro outlined Argentina’s longstanding Section 28 – which denies tax incentives that shift income abroad – and its new Article 196, both functioning as anti-base erosion rules but falling short of full GloBE coordination.

Thompson described Colombia’s alternative minimum tax that floors the ETR at 15 per cent for all resident companies, again without Pillar Two mechanics. Each speaker agreed that these unilateral rules raise revenue but fragment the purportedly uniform landscape.

Carbajal analysed Mexico’s maquila regime – vital for automotive supply chains. Because effective rates under the safe harbour can dip below 15 per cent, German-parented groups could face a foreign IIR unless Mexico either tightens the maquila base or enacts its own QDMTT.

Alcalde reminded delegates that Chile has already dismantled most incentives while raising its corporate rate from 17 per cent to 27 per cent over the past decade, yet election frontrunners now campaign on reinstating preferential regimes, illustrating the policy pendulum.

Díaz-Moro added that several EU members have responded by redesigning incentives to affect book income (the denominator) rather than tax paid (the numerator), thereby preserving benefits without breaching the 15 per cent floor.

What is the future of Pillar Two?

A final roundtable exposed deep scepticism. Thompson argued that Pillar Two’s complexity will simply redirect, not end, tax competition, and could lock developing countries out of refundable credit strategies used by wealthier states.

Carbajal called the Inclusive Framework ‘ever less inclusive’, warning that Latin American needs differ markedly from those of Europe.

Teijeiro contended that the IIR and UTPR infringe customary international law by overriding a state’s sovereign right to exempt income.

Alcalde doubted any multilateral project could endure without US participation, while Vergueiro feared the project may leave developing countries with compliance costs but few benefits.

Díaz-Moro saw certain convergence between Pillar Two and the existing US global intangible low tax income (GILTI) regime and may predict modification rather than burial.

Featherman closed by noting the Senate’s delayed effective date might simply defer the fight to the next administration, leaving business in limbo.

Conclusion and final remarks

Utumi summed up the mood: Pillar Two is not yet pronounced dead, but it has certainly been wheeled into the ICU. Europe is pressing ahead, yet the US is brandishing Section 899, Latin America is cherry-picking defensive measures and developing economies doubt whether a one-size-fits-all minimum tax can coexist with growth-oriented incentives.

Audience questions focused on the potential chill on US inbound equity and on the New York Times report that lobbyists are scrambling to kill the ‘revenge tax’. Featherman replied that the Senate bill’s portfolio interest carve-out aims to shield debt capital, but dividend flows could face rates north of 40 per cent unless countries strike deals with Washington.

The panel left delegates with more questions than answers – chief among them whether multilateralism can be salvaged or whether a new era of tax realpolitik has already begun.