Editor’s note. This conversation was recorded in August, prior to the U.S. presidential election. Despite the election of Donald Trump in November, uncertainty remains surrounding the Tax Cuts and Jobs Act.
No matter how the US election pans out in November, the new administration will have its hands full addressing what’s coming with the Tax Cuts and Jobs Act (TCJA). With some federal provisions due to expire at the end of 2025, general uncertainty about where the US tax regime is headed, and an evolving international tax environment, Tax Executive aims to capture taxpayer sentiment in this issue’s Roundtable from four outstanding experts and leaders in tax policy. Panelists for this discussion include Rohit Kumar, principal and national tax office co-leader at PwC; Ray Beeman, principal and leader at Washington Council Ernst & Young; Alexis Bergman, principal in the specialty tax – international tax services group, at Baker Tilly; and Joe Calianno, partner and leader of the US national tax office at Andersen. The conversation, held over Zoom in late August, was moderated by Sam Hoffmeister, senior managing editor of Tax Executive.
Sam Hoffmeister: As 2025 approaches, what do you see as the most important issues surrounding the TCJA and potential upcoming changes?
Rohit Kumar: A couple things come to mind. The first is a threshold decision that Congress and the president are going to have to make about how much of what’s extended is paid for, how much is deficit-financed, and how much is just not extended to reduce the pressures on offsets and the deficit. My own view is there’s no world in which the entirety is going to be deficit-financed, nor is there likely to be a world where the entirety is fully paid for as reflected on a joint tax table score sheet. There may be other ways to demonstrate that the costs are being offset, but I don’t think they’ll be done in the form of pure revenue-raising offsets in toto. That, at some level, is a threshold question, because how you answer that question then sets some pretty important parameters for what policy options are available to lawmakers, given the size of the various buckets that they’ve deemed to be politically acceptable. And then there’s the separate but important question of which provisions that are not automatically expiring [has] Congress decided to wander into. So, for example, in the revenue-raising component, is there pressure on the headline corporate rate? There’s some pretty significant developments happening overseas at the OECD; to what extent [do] Congress and the White House feel like they’ve got to do something in response to that? That’s sort of a niche issue as it relates to taxpayers generally, but a very important one for a big chunk of US employers.
Ray Beeman: I would just add on to what Rohit said, because I agree. To me, the biggest issue is, How much is going to be paid for? Because it’s going to be somewhere between zero and $4.6 trillion. But second to that is, Who’s going to pay for it? Because when you really look at where the big revenue pots are out there, there’s not many of them within the realm of what’s at least possible, not more esoteric ideas like a carbon tax or a VAT, and there’s not many big levers out there. You might be able to pull a few of those levers, but whatever else you need to pay for is going to be three yards and a cloud of dust.
Alexis Bergman: I agree with Rohit and Ray in that more than $4 trillion of tax increases are scheduled to take effect at the end of 2025 and that policymakers will face significant challenges and fiscal constraints in extending all of the TCJA provisions, potentially forcing Congress to look for new revenue sources. The shape and contents of any potential tax reform, including how much should be paid for and how much should be deficit-funded, will be dependent on the outcome of the upcoming elections and the balance of power heading into the 119th Congress. Regardless as to the outcome of the election, taxpayers need to expect that everything will be on the table for discussion—including a potential increase to the corporate tax rate. Realistically, the timing and potential solutions will depend on whether the election results in a unified or divided government. If one party sweeps, it’s likely they’ll try to use the reconciliation process, which provides its own challenges. If the government is divided, finding areas of consensus could be a significant challenge, as there are stark differences between the Republican and Democratic approaches, as well as variations in priorities and principles within each party.
Joe Calianno: I agree with everything that’s being said. One issue that comes up is who takes over from a political standpoint. If you look at the Democrats and focus on what was included in the most recent Green Book, you get one approach. The Green Book had proposals to raise the corporate tax rate, repeal FDII, repeal BEAT and replace it with an undertax profit rule for Pillar Two, modify the GILTI regime to conform to Pillar Two, and modify the foreign tax credit rules. That’s one side of the aisle. Then you go to the other side of the aisle, which likely will try to avoid tax increases, make the Tax Cuts and Jobs Act changes permanent, possibly fix glitches with the Tax Cuts and Jobs Act, and possibly extend certain thresholds such as the rates for GILTI and FDII back to where they were originally when enacted. Also, as it relates to Pillar Two, there has been resistance from Republicans to the Pillar Two rules and talk of retaliation as it relates to countries that implement those rules if it negatively impacts US companies. So, it seems to me what may happen likely will depend on who is in charge of the White House and Congress. To the extent that you are going to try to extend or make permanent any of these provisions, it’s a “pay for” issue. Will there be spending cuts? Tariffs? Will the the corporate tax rate increase?
Hoffmeister: Jumping into some of the TCJA provisions that are set to expire after the end of 2025, what could the implications be for tax professionals?
Beeman: I think the implication for tax professionals is really going to be the challenge of continuing to navigate this tremendous uncertainty that we have been navigating now for [what] seems like years on end, and I don’t really see that changing. So, it’s the uncertainty. Because whatever they do about TCJA, next year is not going to be the end of the tax reform and tax policy journey. And so, you have the uncertainty, and then just the complexity. Everything is just getting way more complex, to a level that I don’t think any of us have ever even seen approached. I think the complexity is just going to continue to increase. Not just in the isolated tax code provisions like the corporate AMT, the international provisions, but also the larger overlapping and intersecting tax regimes that companies have to deal with in the US and across the globe as well. It seems like a lot of tax administrators are doing a lot of big things simultaneously and not really coordinating any of it.
Bergman: There is a tremendous amount of uncertainty due to the highly unpredictable nature of this November’s election and its implications for the tax policy landscape. Tax professionals can help their clients by modeling potential tax policy outcomes in order to address this uncertainty. Navigating these uncertainties structuring their global financial affairs, and ensuring compliance with tax laws across multiple jurisdictions, including leveraging of tax treaties, and optimizing transfer pricing policies will allow multinationals to make informed long-term business decisions. Additionally, the overlay of CAMT and Pillar Two, along with the business and international tax provisions (e.g., FDII, GILTI, Section 163(j), and BEAT) of TCJA, will require greater resources to model global tax strategies for multinationals and ensure proper reporting and compliance. Planning with these changes in mind will be crucial for tax professionals advising large multinationals in 2025 and beyond.
Calianno: I’d agree with that. What you’re doing now is a lot of modeling to determine the possible impact on companies. In addition to developments in the United States, you also need to focus on the developments abroad, especially developments relating to the GloBE rules, especially Pillar Two. You’re also looking at the interaction of certain US rules with Pillar Two. For instance, Treasury already has issued some guidance as it relates to the application of our rules in light of the Pillar Two rules. We’ve had guidance from Treasury both in the foreign tax credit and dual consolidated loss area as it relates to Pillar Two. At the end of the day, it’s tracking everything that’s happening not only in the United States but also abroad and modeling the impact that these developments will have on companies. This requires following proposed changes in US tax law as well as foreign tax law. And I would make a recommendation to companies. If certain provisions of the Code are really important to your company, you need to be advocating for them. This approach also should be taken as it relates to foreign tax developments. There are several moving parts. Change in one part could have a ripple effect with others.
Kumar: I had the luxury of being in Dubrovnik, Croatia, not that long ago, where Game of Thrones was filmed. The phrase “Winter is coming” [laughter] seems entirely appropriate here under any plausible scenario. One scenario is the US adopts a per-country GILTI regime. A lot of complexity, a lot of pain for tax directors for the largest multinational companies. The alternative theory is the US says, “No; we’re just doing what we’re doing, and that’s that.” That, too, comes with a fair bit of complexity and pain as well. I have nothing but unending sympathy for the tax directors of US-headquartered companies, especially globally engaged companies, because there’s just a ton of complexity and challenge over the horizon, and there’s no easy way out of that other than some significant political compromise, which remains to be seen if that’s available. That’s what you might hope for, but hope is not a strategy. Folks have to plan for complexity. What makes it more complicated, of course, it’s not clear which version of complexity we’ll be facing.
Hoffmeister: As far as the international provisions potentially becoming more restrictive in some ways, what’s the effect on multinationals?
Kumar: The tightening of the BEAT rules, the increase in the FDII and GILTI rates on their own don’t introduce new complexity to the system. The BEAT changes a little bit, but these are mostly rate changes for an existing structure that is otherwise reasonably well understood. They do make being a US-headquartered company somewhat less attractive. The higher FDII rate would make putting your intellectual property in the United States a somewhat less attractive decision relative to other places in which it might sit, especially to the extent that IP is servicing foreign markets. So, there’s a degradation component there. It’s hard to say that at the current rate everything’s fine but at a slightly higher rate everything falls off a cliff. It’s incremental, right? And it’s not that you would expect a flotilla of private jets to take a bunch of IP out of the United States immediately in 2026. That would be actually in some ways easier to manage, because it would be an event and Congress would react. It’s that new intellectual property just naturally grows up somewhere else. It’s the death by a thousand cuts, or the economic activity that never happened here, but it’s hard to prove that it would have happened here otherwise. That’s the real challenge for lawmakers and taxpayers to grapple with. And then there’s if we just keep the current regime but the rest of world continues doing what it’s doing, how do you harmonize the two regimes? That’s to some degree irrespective of the rates; that’s a structural feature. We have found a way to do that in the short term. It becomes a question of, Can those short-term patches that otherwise are set to expire—this is like the UTPR safe harbor and the GILTI allocation methodology, just to pick my two favorite ones because I do have favorites—is there some way to make those a more durable feature of the international system? And that in and of itself is complicated, because it’s no longer just the province of the OECD. This is now individual countries are doing individual things, and you might have to go negotiate with several dozen if not more countries to get a continuation of the temporary patch that was otherwise agreed to.
Bergman: I agree with Rohit’s perspective. US multinationals may have to revisit their corporate structures, and explore changes to their business models, supply chains, and transfer pricing strategies, in the face of increases to their effective tax rate and cash tax liability resulting from automatic law changes for GILTI, FDII, and BEAT rate increases, beginning after December 31, 2025. Note the GILTI rate will go up from 10.5 percent to 12.5 percent and the FDII rate will also go up, from 13.12 percent to 16.4 percent, while the BEAT tax rate not only increases by 2.5 percent but [also] the calculation of the modified taxable income (MTI) disallows the benefit of all credits, including all previously retained credits, the research credit, and the qualifying Section 38 credits, for tax years beginning after December 31, 2025. Additionally, US multinationals are facing increased compliance costs and may have to consider improving tax compliance and reporting processes to ensure accuracy and timely filings.
Moreover, the enactment of Pillar Two introduces an additional layer of tax, which could increase the complexity and administrative burden for multinationals that must navigate and comply with multiple tax regimes, potentially impacting their competitiveness and operational efficiency.
Calianno: You need to model all these changes to determine their impact on your company. One question that you may ask is, Are there any actions or measures that you can take to alleviate the tightening of some of these rules? Any possible restructuring that could be done? For instance, if you are subject to BEAT, are there ways to reduce your BEAT liability or eliminate it? However, any restructuring or changes to your business model need to be analyzed from a global perspective, especially given the GloBE rules. In addition to the changes tightening FDII, GILTI and BEAT, you also need to focus on the fact that the CFC look-through rule, 954(c)(6), will be expiring in the near future unless it is extended. Absent being extended, the provision will expire after the 2025 tax year. Thus, you have a number of moving parts that can impact your tax position. As mentioned above, what happens in the future with respect to these various provisions may depend on the political landscape.
Beeman: You started with the three international tax changes that are looming, but obviously the TCJA international tax architecture itself is permanent. Maybe you’d normally say any impacts from the changes are going to be around the edges, around the margins, as some of the others said here, but in a world where we have parallel minimum tax systems now and all kinds of other things happening, it’s a lot more difficult to know what is at the margins in comparing the GILTI rules or the BEAT rules to what else exists in the world. It’s important to step back for a moment and just recognize that before 2017, we were playing around with a sixty-year-old international tax system. There were changes to that system throughout that entire period. You certainly could argue it never got perfect; in fact, it was fundamentally flawed. So, even though we say 2017 was seven years ago, we have a pretty young international tax system that I think we’re still learning from. I’ve always said since 2017, that was the first draft of international tax reform. We’re only now, I think, understanding the rules we put into place in 2017, how they actually work. As we’re trying to figure out the global scale of what we should be doing in relation to Pillar Two, we also have to recognize that we have a system in place now that probably will have to undergo a refresh at some point irrespective of what it means for Pillar Two, just because there were mistakes made in 2017. Not because people did anything wrong—it was super complicated, and the idea [that] anybody’s going to get it right the first time is just not realistic. I think we just have to bear in mind we’re still working with a pretty new regime here that we just need to make sure we get right before we worry about the rest of the world.
Hoffmeister: Let’s talk about hopes [laughter]. What are your hopes for making things more taxpayer friendly? What can Congress do?
Calianno: In the ideal world, Congress drafting legislation that is clear on its face and easy for taxpayers to apply for tax return and financial statement purposes would be on the wish list. However, I think there’s a challenge on that front. Whenever legislation is being drafted, Congress is trying to take into account fairness, administrability, and government and taxpayer concerns. It’s a challenge to write simple, easy-to-apply rules when we have such a complex tax system with so many sections being interrelated. Additional complexity results from what is happening globally in terms of Pillar Two. It’s difficult to draft rules that satisfy all of these objectives. Take the Tax Cuts and Jobs Act—there were a number of glitches that produced some unintended results. Drafting clear legislation that is less open to interpretation would put less tension on interpretations of what Congress meant. However, as I mentioned earlier, there will inevitably be gaps that need to be filled given the complex system that we have. Treasury generally fills in those gaps through regulations. However, there often are disputes between taxpayers and Treasury as to how Congress intended a provision to operate. This puts more pressure on how Treasury is interpreting congressional intent, which, in light of the Loper Bright decision, will result in more scrutiny of Treasury’s interpretations. Thus, to the extent that Congress can make clear what it intends in the actual statute, there will be fewer disputes and more certainty for taxpayers.
Kumar: For me, if you were trying to come up with a wish list of things that you would want Congress to tackle, especially on the international side of the ledger at the end of 2025, it starts with rates. Keep the rates where they are. Probably a very close second—and maybe for some taxpayers even a first priority—would be to fix the expense allocation rules, which are a unique creature of the US system that aren’t extant elsewhere but actually cause companies to end up paying well above the specified statutory. And then third, and this is really pie-in-the-sky given the magnitude of the extent and size of the expiring provisions, but to help pay for some of this we could be creative in thinking about ways to bring additional income into the US tax base that’s currently sitting in the tax base of a foreign jurisdiction because they have a more attractive regime. That might mean providing a preferential rate, but getting less of something beats getting twenty-eight percent of zero, which I think in some cases is still happening because while, to [underline] Ray’s point, we modernized the international system—way overdue—because we were doing it for the first time in sixty years, we were doing entry-level international modernization. Other countries who’d already done that are now doing graduate-level work in attracting capital and will continue to do so. They are doing so even now in a post-Pillar Two–compliant way, and they’re doing so in ways that the US is just not super well equipped to do. As a country, we’re just not wired to go to the IRS and say, “What kind of grants can I get to build a facility in the United States?” There’s limited areas, like CHIPS Act kind of stuff, but as a general matter, if you’re not in a specified sector, you don’t get to go to the IRS and ask for a cash grant to engage in economic activity in the United States. Some might think it a crime to even raise the question. So, it’s a tricky place to be. There are some things we can do to avoid what are currently self-inflicted injuries, and then there’s some things we ought to do, even if we can’t get to them right away, to continue to attract investment and capital and the resulting economic activity and tax revenue that would follow.
Bergman: On my wish list would be that the US corporate income tax rate remains competitive to ensure US multinationals remain highly competitive in the global economy. Ensuring tax parity for intangible income via the FDII deduction (or a similar mechanism), so that decisions to locate and exploit intangible property outside the US are mitigated would also be a wish list item, which would have an added benefit of increasing employment and investments in the US. With the advent of Pillar Two, ensuring that the US R&D credit is treated more favorably under Pillar Two, giving rise to income rather than a reduction in taxes paid, would be helpful. Besides offering refundable R&D credits, consideration should be given to expanding the qualifying expenditures and increasing the credit rate to stay competitive in a post-BEPS world. Adopting Pillar Two by enacting country-by-country GILTI and repealing BEAT with a UTPR replacement that is Pillar Two–compliant to mitigate further retaliation/trade war risk may also simplify the tax reporting and compliance for large multinationals (albeit there is no appetite for this within the Republican Party).
Beeman: When you’re doing what’s called legislative policy development, one of the very first questions you ask yourself is, Do you write a provision in a very mechanical way, or do you write a provision that is more judgmental, open to facts and to circumstances? Both approaches have advantages and disadvantages. I would say one of the fundamental shifts we took in 2017 was a move away from more facts-and-circumstances rules to much more mechanical, precise rules and calculations. Just look at BEAT, for example. It’s kind of that on steroids. But you lose something when you try to do that. It’s perfectly understandable what the desire is, which is “Let’s make this more straightforward to apply,” whether you’re at the IRS or a taxpayer, with a computer or spreadsheet. Just crank out the formula, and here’s your number. And yeah, maybe in terms of what the policy objective is, it’s off one way or the other a little bit, but it’s mechanical and in theory easier to administer for both sides. I think what we’re learning is that that’s not always the case, and there’s something to be said for allowing taxpayers and, frankly, the IRS to exercise some judgment, which obviously we do much more on the financial accounting side, at the risk of more controversy. The whole idea of the overall TCJA approach was to mitigate controversy by having just a formula to use. A good anecdote that illustrates the point I’m making goes all the way back to the early, early development of what later became GILTI, where we have this QBAI feature. There was a first draft of it that was put out under Chairman [Dave] Camp [of the House Ways and Means Committee] in 2011, and it didn’t have this formula. It just said, “Carve out all IP income, including embedded income,” and that was met with a wave of criticism from taxpayers saying that would be so hard to do and would create a cottage industry for people to quantify that and lead to controversy. That led to the mechanical rule in a subsequent draft, which you have now in the Code as QBAI. From the first draft to the second draft, I think we lost something along the way, and that something is an understanding of what QBAI’s role is and what the point of GILTI is, and FDII. Over time, too many people have forgotten that original understanding, because the rule’s just mechanical; it doesn’t tell you, even within the Code, what it is Congress is trying to do or capture. I think that lends itself to what several of us have pointed out, which is the flaws in the TCJA, because it is a first draft. That fundamental tension between how you write rules, where you leave it open or not open to Treasury and the IRS and taxpayers, open to fact-based determinations versus a formula. And I would say, in many cases, those formulas, you’d better get them right or you’re gonna have to come back and fix them later.
Hoffmeister: Any final thoughts you’d like to share?
Beeman: One of the things I’ve liked to say for a long time is that tax reform is a journey, not a destination. One way or another, we’re going to get through this tax cliff. Because most of the business and corporate provisions, putting aside 199A, are permanent, at least the architecture; we could very well get through this tax cliff without anything changing there, at least as part of this exercise. But that’s not going to be the end of the story. I’m already thinking post–tax cliff: What does “post–tax cliff” look like? What does that next bill look like? Maybe it is another run at cleaning up all the international stuff and figuring out if we align with the rest of the world or don’t align, what all that looks like. In some ways, actually thinking about the bill that comes after the cliff is maybe a statement on my own passion for tax policy, but I am already thinking that far out.
Calianno: At the end of the day, there’s a lot going on. We have the Tax Cuts and Jobs Act and what happens on that front, which likely will be determined by what happens politically. We have the GloBE rules, including Pillar Two, on the global front. You have the intersection of all these rules. So, once again, you need to be following all of these developments to determine what impact they will have on your group. We are likely to see more and more guidance in the US relating to the OECD developments. It’s important to keep monitoring everything. From a US and foreign perspective, it’s going to continue to be fluid, and you’ve got to keep taking into account various changes. If you have operating models, you’ve got to keep changing them based upon the changing law.
Bergman: No matter the outcome of the election, we’re anticipating changes to the tax policy landscape, either as a result of tax reform or the expiration of TCJA provisions, and the advent of Pillar Two, Pillar One Amount B, CAMT, etc. The sunsetting of the qualified business income deduction could also have a substantial significant impact on entity choice; taxpayers should be proactively modeling potential outcomes. Due to the uncertainty surrounding the election and pervasive impact of the expiring provisions in the 2025 tax cliff, planning and analysis is more important than ever. Therefore, understanding the factors impacting multinationals, tracking tax developments, and modeling potential tax policy outcomes is critical for advising clients in making informed long-term decisions.
Kumar: In talking to a lot of taxpayers over the last several months, there’s certainly a sense amongst some that Congress has gotten so comfortable blowing through its deadlines and then doing things in arrears, [that] “Isn’t that likely to be the case here? This is so complicated and so hard and so expensive; are they really going to get it done in 2025?” I take what I don’t think is a contrarian view, but perhaps it is. I think they’re going to get it done in 2025. The reason I say that is because absent action, every W-2 wage earner in the country will experience an automatic tax increase come January of 2026. Withholding tables will adjust, and the last paycheck they get in December and the first paycheck they get in January will look materially different from one another. Having lived through the last big fiscal cliff in 2012, and having participated in that negotiation, I have a strong point of view that that is a real action-forcing event for Congress. That’s not to say they’re going to come up with a permanent solution in 2025; if it’s a reconciliation bill, it could be another eight-year punt, and of course nothing is permanent the moment there is a new Congress that wants to revisit the decisions of a prior one. But I would urge taxpayers not to assume that this is going to roll substantially into ’26 and that the real deadline is April of ’27, when individual taxpayers file their 2026 tax returns. I think there will be immense economic and political pressure to get this resolved by the end of 2025, and we should act accordingly.
Hoffmeister: Thank you all so much for your time.
