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In brief

On Thursday, 7 March 2024, the Tax Subcommittee of the House Committee on Ways and Means held a hearing on the Organization for Economic Co-operation and Development (OECD) inclusive framework’s Pillar One project. The hearing marked Congress’ first public inquiry dedicated solely to Pillar One since the release of the draft Multilateral Convention to Implement Amount A of Pillar One (MLC) and the final Amount B report. The same Subcommittee examined both Pillar One and Pillar Two in a July 2023 hearing that featured then-Deputy Assistant Secretary for International Tax Affairs Michael Plowgian.

The hearing featured four witnesses: Megan Funkhouser, the Senior Director of Policy, Tax and Trade, for the Information Technology Industry Council (ITI); Rick Minor, Senior VP, International Tax Counsel for the United States Council for International Business (USCIB); Gary Sprague, Partner at Baker McKenzie; and Daniel Bunn, President and CEO of the Tax Foundation. The written witness statements of each witness can be found here.


  1. Concerns raised regarding Pillar One
  2. Eliminating and Preventing DSTs, Trade Wars
  3. Deficiencies of Amount B
  4. Questions regarding other aspects of Amount A
  5. Impact of hearing on US progress toward ratification of the MLC

Concerns raised regarding Pillar One

Chair of the Tax Subcommittee Mike Kelly (R-PA) opened the hearing by noting his concerns with respect to Pillar One, which were echoed by his Republican colleagues throughout the hearing. Citing the Joint Committee on Taxation’s (JCT) report that concluded the United States would have lost USD 1.4 billion in federal tax revenue had Amount A been in effect in 2021, Rep. Kelly questioned why the burden of stabilizing the international tax framework should fall disproportionately on American companies. Further, Rep. Kelly expressed concerns that Pillar One could diminish US financial security, and allow foreign countries to dictate US tax policy.

Rep. Kelly also raised concerns about the Biden administration’s lack of coordination with Congress during the course of the Pillar One negotiations. The Biden administration has been responsible for all OECD negotiations, with limited involvement from either chamber of Congress. Congressional Republicans have criticized the Biden administration and Treasury for the lack of communication with Congress during the OECD negotiation process, especially in light of the important role of Congress in agreeing to and implementing Pillar One. If the MLC were opened for signature and signed by the Biden administration, the US Senate would be responsible for providing advice and consent for ratifying the MLC. Further, both the House and the Senate would need to pass domestic implementing legislation in order for the United States to be able to claim taxing jurisdiction over any Amount A income allocated under Pillar One.

All four witnesses at various points agreed that there should be more engagement and coordination between the Treasury and Congress regarding Pillar One in order to make necessary improvements to the MLC and Amount B of Pillar One.

Eliminating and Preventing DSTs, Trade Wars

Subcommittee members from both sides of the aisle acknowledged the importance of the underlying intent of the Pillar One project to eliminate discriminatory digital services taxes (DSTs) and other similar unilateral measures, as well as to restore certainty and stability within the international tax framework. However, several members questioned whether the current draft MLC would adequately eliminate DSTs and prevent additional measures from being enacted in the future.

Bunn, of the Tax Foundation, explained that the current MLC would only reach some DSTs, and would leave the door open for new discriminatory measures. Bunn noted that the current definition would not capture measures that apply to both foreign and domestic businesses, leaving a loophole for further measures. Funkhouser, of ITI, also noted the evolution of DSTs from the first wave of European measures to more expansive provisions, in addition to more aggressive ruling positions (citing the Australian Taxation Office’s draft ruling on the character of payments in respect of software and intellectual property rights). Minor, of the USCIB, also noted that the exception within the definition of DSTs for measures purportedly imposed for non-tax policy reasons creates a significant loophole. Minor recommended that the United States advocate for the elimination of these kinds of carve-outs in order to create a more “air-tight” definition that prohibits potential future unilateral and discriminatory measures.

Subcommittee members questioned whether there were alternative avenues for eliminating DSTs. The witnesses agreed that a multilateral agreement, such as the MLC, was the necessary mechanism to achieve this goal, and that it would be difficult to completely eliminate DSTs otherwise. Witnesses also noted the consequences of abandoning the Pillar One project, specifically that DSTs and other unilateral measures would undoubtedly proliferate, potentially leading to retaliatory trade wars. This risk was highlighted by witnesses as the main reason for the United States to remain engaged in the OECD negotiations. Most, if not all, Subcommittee members agreed. A common refrain was “If you’re not at the table, you’re on the menu.”

Rep. DelBene (D-WA) raised the DST currently under consideration by Canada, noting that Canada believes it can proceed with its DST because the United States has not retaliated against other jurisdictions that have enacted DSTs. This was in reference to the United States’ 2021 agreements with Austria, France, Italy, Spain, and the United Kingdom to suspend retaliatory tariffs (which were recently extended to June 2024). Funkhouser disagreed with Canada’s assertion, explaining that the Canadian DST was modeled after the French DST, which the US Trade Representative found discriminatory. Funkhouser also emphasized that, by moving forward with the proposed DST, Canada could hinder the Pillar One negotiation process and inspire similar action amongst other countries.

Deficiencies of Amount B

Witness Gary Sprague focused his opening statement on Amount B of Pillar One. Sprague noted that the narrow scope of the regime would deprive the very companies that are the targets of DSTs (i.e., major tech companies) of the certainty and streamlined approach of Amount B. Sprague also highlighted that the optional nature of Amount B reduces the predictability and certainty that was expected to come from Amount B. Sprague noted that New Zealand’s recent decision to opt out of Amount B does not bode well in terms of consistent, widespread application. Sprague also cautioned against the inclusion of an additional qualitative scoping restriction for Amount B.

Sprague recommended that the United States continue negotiations on Amount B, particularly to widen the scope of Amount B or obtain a commitment from the OECD to establish a new work stream to include digital goods and services within the scope of Amount B in the future. The other witnesses also echoed this recommendation. In the absence of a multilateral agreement, Sprague recommended that Amount B could be broadened on a bilateral or multilateral basis through Competent Authority agreements.

Rep. Thompson (D-CA) asked Sprague about the historic monetary impact and demands placed on the IRS due to the increase in Mutual Agreement Procedure (MAP) cases relating to distribution transactions that would be within the scope of Amount B. Sprague noted it was hard to quantify the impact because it will vary by company or dispute, but that the costs are significant. He explained that a MAP case is the last resort, and taxpayers seeking MAP assistance have already completed fact-intensive audits and other stages of tax dispute resolution that demand company and IRS resources, as well as external fees. Sprague noted that Amount B might not completely eliminate MAP cases for routine distribution activity, but would significantly narrow the issues that are taken to MAP.

Questions regarding other aspects of Amount A

Rep. Schweikert (R-AZ) delved into the Amount A calculation, focusing on whether the Amount A formula took into account expenses (i.e., that it was based on net income, not gross income), the operation of the 10% operating profit threshold, and whether the calculation could be manipulated by moving assets between jurisdictions. Witnesses explained that the Amount A calculation is based on a taxpayer’s global pool of profits, and that the movement of assets would affect income arising in a particular jurisdiction and the allocation of the obligation to relieve Amount A double taxation among jurisdictions, but not the overall Amount A income of the taxpayer’s group. Rep. Schweikert also questioned whether Amount A is designed to account for potential disruptions in the economy, such as the rise of AI. Witness Gary Sprague explained that AI should not necessarily have an impact on the Amount A allocation among countries, as the associated IP will give rise to profits in the allocable pool just as current IP assets do.

Rep. Kustoff (R-TN) raised concerns regarding the confidentiality of taxpayer information within the Pillar One framework. Rep. Kustoff noted that Pillar One establishes a new process for filing Pillar One-specific returns and paying the associated tax, and questioned whether this process contained sufficient limitations on the sharing of taxpayer information among different tax authorities. Minor stated that this was a valid concern and that the administrative provisions of Pillar One needed to be strengthened in this respect to include clear consequences for breaches of confidentiality.

Rep. Estes (R-KS) asserted that the marketing and distribution profits safe harbor (MDSH) of Amount A does not adequately take into consideration taxes paid by franchise or split-ownership structures, causing an over-allocation of profits to market jurisdictions. Rep. Estes also criticized the Biden administration’s failure to obtain favorable treatment for US R&D credits in the Amount A calculation.

In one of the final rounds of questions from the Subcommittee members, Rep. Schneider (D-IL) asked each of the witnesses whether the US should walk away or remain engaged on Pillar One. All four supported continued engagement.

Impact of hearing on US progress toward ratification of the MLC

Many Subcommittee members noted that they were still getting acquainted with Pillar One and the details thereof, citing the lack of coordination with Treasury regarding progress at the OECD. However, many members expressed their desire to delve further into the finer details of Pillar One in order to place pressure on the Treasury and the Biden administration to negotiate a better deal for the United States. This could signal a period of increased collaboration with, or pressure on, the Treasury, which could impact the United States’ approach to the closing stages of negotiations on Pillar One.

After the hearing, House Ways and Means Committee Chairman Jason Smith (R-MO) and Senate Finance Committee Ranking Member Mike Crapo (R-ID) released a joint statement opposing Pillar One and the draft MLC as it currently stands. The release states that “JCT’s analysis provides ample reasons why the Administration should not sign on to the current version of the deal,” and that, though they oppose discriminatory DSTs targeting American companies, “the bad behavior of foreign countries imposing them should not be rewarded by accepting a deal that reduces US revenue, undermines our tax sovereignty, and fails to provide more stability to boost American companies in the global marketplace.” The statement ends with a recommendation that the Biden administration negotiate a better deal and do so with “robust congressional consultation”.

Should the MLC be opened for signature and signed by the United States this year, it remains unlikely that Congress would begin ratification proceedings or consider domestic implementing legislation this year. Though the hearing signaled increased interest on behalf of Congress, many competing political demands and the pressures of an election year make swift action on major tax issues improbable.

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The views expressed herein are solely those of the individual and do not represent the views of the firm or any of its clients


Imke Gerdes is a partner in Baker McKenzie's New York office, co-chair of the New York and Miami Inclusion and Diversity Committee and a member of the Firm's North America Transfer Pricing Steering Committee. Before joining the New York office, she was a partner in the Firm's Vienna office. Imke is admitted to the German Bar, the New York Bar and she is admitted as tax advisor ("Steuerberater") to the Austrian Chamber for Tax Advisors.


Richard Fletcher heads the UK Transfer Pricing Group in London. A seasoned professional with over 30 years of experience as an international tax adviser, he has published a number of articles in various tax technical journals. Richard has presented at the International Tax Review’s Global Transfer Pricing Conference for a number of years and at meetings of tax directors of UK multinationals for the UK branch of the International Fiscal Association.


Katie Rimpfel is an associate in Baker McKenzie’s North America Tax Practice Group in Washington, DC. Katie practices in the areas of tax planning, tax controversy and transfer pricing. She advises major multinational corporations and individuals on US federal income taxation matters.

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