Peter Barnes Speaks to Law360 on Tax Consequences of Pillar Two

An international minimum tax agreement's backstop provision could trigger offshore liabilities for U.S. multinationals that are seen as paying too little at home under the global rules, which view long-standing research and development credits as pulling down effective tax rates.

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The financial accounting treatment for refundable and nonrefundable credits is different, and Pillar Two — which is built on financial accounting — would therefore treat these credits differently in testing for the 15% rate, according to Peter Barnes of Caplin & Drysdale. But in his view, this difference makes no sense for a tax rule.

"The tax consequences under Pillar Two should not turn on the financial accounting rules with respect to this issue," Barnes said.

He added, "In the longer term, I expect the OECD will build rules to treat nonrefundable credits the same way that refundable credits are treated for Pillar Two. There may, of course, be guardrails."

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