Peter Barnes Comments on Global Minimum Tax Rate in Financial Planning

Global trade and tax policy questions with as-yet elusive answers could expose the U.S. economy and clients' investment portfolios to difficult tests in coming months.

On the one hand, the One Big Beautiful Bill Act became law without a so-called revenge tax on foreign investments in the U.S. after member countries in the G-7 agreed in principle to a "side-by-side" setup exempting America from minimum global duties. On the other, the mix of confusing calculations about the size and impact of President Donald Trump's tariffs and the rates of inflation, unemployment and corresponding decisions by the Fed is fueling macro-level fears about the economy. Policy experts are struggling to keep their forecasts up to date.

Financial advisors and their clients, in turn, may face even more difficulty than think tanks and stock analysts in trying to prepare for short-term volatility in the context of long-term goals. And the year-end deadline for the U.S. safe harbor from the Organization for Economic Cooperation and Development’s Pillar Two global minimum tax rate of 15% could add further complications, said Peter Barnes, whose Of Counsel to the International Tax Group of Caplin & Drysdale. But the removal of Section 899 duties from the law assuaged "a legitimate concern" on Wall Street that the "significant tax penalties" could have hampered economic activity, Barnes said.

"Foreign investors into U.S. companies would have had a fairly legit reason to say, 'You know, there are a lot of countries around the world where I can invest. I don't need to invest in the U.S.," he said. "Not only did you have a reasonable fear of foreign investors saying, 'I'm out of here,' but you had uncertainty because you didn't know which investors from which countries."

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That statement between the Treasury and G-7 allies represents "a good step forward in resolving issues involving the global minimum tax," but "2026 is coming rapidly," Barnes said.

"As a technical matter, they need to go back now and say, 'Oops, but not for the U.S.' Are they going to be able to do that in time? Are they going to do that?" he added. "It will not be surprising if one or two or more countries say, 'No.' I think that would be a mistake, but it's certainly possible."

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