ITR Pillar Two Forum: New regime to supplant state aid pushback on favourable rulings

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ITR Pillar Two Forum: New regime to supplant state aid pushback on favourable rulings

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James Anderson, of Skadden, speaking at the ITR Pillar Two Forum 2024

The head of Skadden’s European tax practice said the recent Apple CJEU ruling could be the last of its kind as pillar two develops

Pillar two offers more tools for regulators and other countries against global group tax rate management, and could mark the end of an era in state aid enforcement, a speaker at the ITR Pillar Two Forum said on Thursday, September 19.

James Anderson, head of the European tax practice at law firm Skadden in London, said Apple’s recent court defeat over state aid rules might appear irrelevant to pillar two but could in fact be the “high watermark” of such activity due to the arrival of the new tax regime.

In a major victory for the European Commission, the Court of Justice of the EU ruled on September 10 that Apple had to repay Ireland €13 billion ($14.5 billion) in unpaid taxes, in a long-running battle over two tax decisions relating to transfer pricing arrangements.

“It’s almost speaking to a redundant law from the competition world that won’t need to be applied to tax rulings any more,” said Anderson, who argued that the new pillar two regime including its undertaxed profits rule gives authorities more tools to play with.

Anderson and his colleague Jisun Choi, also a partner at Skadden, were speaking in a session called ‘What does the future hold for pillar two?’ at ITR’s inaugural event focusing on the new rules.

One of their key topics was the impact on M&A deals, a potentially complex side-effect of pillar two. The partners walked through several M&A scenarios and considerations, including modelling, due diligence and separation planning.

They also assessed whether private equity houses will have an advantage over multinational trade buyers or sellers, with Choi saying they possibly will.

She added that joint ventures (JVs) will be “particularly tricky” because a typical JV is not deemed to be as such within the meaning of the GloBE rules.

Anderson said that some entities may look for workarounds to pillar two by setting up as funds rather than corporates, as funds are not within scope if the fund or manager is regulated. He admitted, however, that this is “beset with difficulty, extremely complicated and fraught with PR issues”.

On the future of pillar two, Anderson likened the new regime to a “living beast” with a new set of rules or administrative changes every six months. When asked to predict what the next 25 years might look like, he said that a global enforcement regime for the tax levied rules – rather than just a set of principles for each country to apply – was likely.


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