Key takeaways from the Joint Ventures and Pillar Two in Practice webinar

Ongoing information requirements

Pillar Two binds JV entities and investors in an unprecedented manner. The parties will need access to information both to comply with their own filing obligations as well as to verify the impact of Pillar Two on the JV (including for the purposes of enforcing any indemnity provisions). This may require access to sensitive data, potentially raising confidentiality and antitrust concerns. The compliance burden of Pillar Two can be onerous: who will bear the cost of collecting the requisite data and doing the necessary computations? Cooperation will be needed in terms of making (or not making) Pillar Two elections, allocation of income to JV entities, filing returns, and dealing with audits and disputes.

Importance of factoring Pillar Two in early

Pillar Two can affect the financial returns from the JV, which will impact the financial modelling and may justify changes to the JV structure such as the location of holding companies. Early consideration can help avoid odd results, for instance under the UTPR, and ensure appropriate indemnities are in place where needed.

Specific considerations for U.S.-headed multinationals

There are a number of ways that the Pillar Two rules interact with U.S. tax rules that could lead to unexpected results. For instance the treatment of basis step-ups under U.S. tax rules may not be respected for Pillar Two purposes. Whilst there are exceptions provided for in the rules which may assist, their application is limited and often unclear.

Final thoughts

Pillar Two is a complicated beast. It involves new, rapidly developing legislation, across multiple jurisdictions with potentially diverging interpretations. Pillar Two’s reliance on accounting concepts and the interplay with new legal rules and evolving commentary present novel challenges. The recent U.S. elections may also have an impact on the future direction of Pillar Two globally. Early and thorough consideration of the relevant issues is essential to navigate these challenges effectively.