Financier Worldwide Indepth Features Global Tax 2026
Clark Armitage and Jose Perez share insights in Indepth Feature Global Tax 2026 for Financier Worldwide Magazine.
Q. Could you outline what you consider to be the key developments relating to tax regulations that you have seen in your country of focus over the last 12-18 months?
A. Key developments in US international taxation include changes to the Global Intangible Low-Taxed Income (GILTI), now Net CFC Tested Income (NCTI) and the Foreign-derived intangible income, now Foreign-Derived Deduction Eligible Income (FDDEI) regimes, effective 1 January 2026. The NCTI taxes US multinational enterprises (MNEs) on income of controlled foreign corporations. The FDDEI regime allows a reduced tax rate on income earned on non-US sales that result from US activities. The regimes are intended to tax income on non-US sales similarly, whether the activity takes place within or without the US. The changes increase the tax rate for both regimes from approximately 13 to 14 percent and apply that rate to more income by eliminating a 10 percent threshold return on tangible assets. On balance, the changes encourage US MNEs to locate operations in the US. Another important development is the Side-by-Side Agreement between the US and G7 that generally treats the GILTI and NCTI as a qualifying global minimum tax framework. The agreement allows and perhaps encourages companies to locate in the US without incurring material Pillar Two taxes.
Q. What factors are driving the political agenda on tax-related decisions? Does there seem to be motivation to get tougher on tax enforcement, for example?
A. The political agenda appears to be driven less by stricter US tax enforcement and more by efforts to protect the competitiveness of US MNEs. A clear example is the US opposition to digital service taxes (DST), which are perceived as disproportionately affecting US big tech companies. To discourage the adoption of DSTs, the US has relied on tariffs and threatened a retaliatory tax. Another example is a reduced budget for the US Internal Revenue Service (IRS). The number of IRS personnel declined 27 percent, from 102,101 on 25 January 2025, to 74,465 on 18 December 2025. The broader policy focus thus appears to be economic competitiveness rather than a generalized effort to increase tax enforcement.
Q.To what extent is transfer pricing a key challenge for multinational enterprises? Are too many companies underestimating the importance of compliance and risk management in this area?
A. Transfer pricing (TP) remains one of the most significant tax challenges facing MNEs. The IRS continues to litigate large-dollar TP cases. At the same time, the incentives for US MNEs to shift profit offshore through TP have decreased. Income earned from US operations is now taxed at 21 percent, while offshore income generally is taxed at 14 percent or more. Before 2018, these rates were 35 percent and 0 percent. US accelerated depreciation rules are seen as further encouraging the onshoring of economic activity to the US. It seems likely that, considering these changes, the IRS will decrease its emphasis on TP enforcement. However, individual source countries are likely to continue scrutinizing intercompany transactions to ensure local activities earn an appropriate share of taxable income. As a result, TP disputes and corresponding TP adjustments are likely to remain common, and we expect a steady stream of mutual agreement procedure (MAP) cases going forward.
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