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January 1 marked the official effective date of the 15 percent global corporate minimum tax imposed by pillar 2 as part of the G-20/OECD/ inclusive framework base erosion and profitshifting 2.0 project. Pillar 2 went into effect in Australia, Canada, the EU, Japan, Norway, South Korea, and the United Kingdom, with more countries expected to adopt it soon, including low-tax countries like Barbados, Ireland, Luxembourg, the Netherlands, and Switzerland. Critics have argued that pillar 2 violates tax treaties, customary international law, or bilateral investment treaties. But it seems unlikely that legal challenges against it will succeed. Most of the countries that have adopted pillar 2 can override tax treaties by domestic legislation (such as Australia, Canada, and the United Kingdom) directive (the EU), or referendum (Switzerland). The existence of customary international tax law is disputed, and it would be a brave national court that relied on it to invalidate a reform endorsed by over 140 countries (after all, if enough countries adopt a rule, they can effect a change in customary international law). A bilateral investment treaty arbitration challenge by an investor is more plausible, but if a losing country refunds the tax it collected, this could trigger additional tax liability in another country the multinational operates in, so it's unclear what the multinational would gain.


Reprinted with the permission of Tax Analysts

Available for download on Sunday, January 29, 2034