The Tax Court Recently Decides Two Research Credit Cases – One Favorable on Funding (Smith) and One Unfavorable on the Four-Part Test (Phoenix Design Group)

Taxpayers had mixed success in two recent research credit cases in the United States Tax Court.
In Smith v. Commissioner,[1] the taxpayer was an architectural firm. The Tax Court denied the Commissioner’s motion for summary judgment, allowing the case to proceed to trial on the issue of whether the taxpayer’s clients funded its research activities.
In Phoenix Design Group, Inc. v. Commissioner,[2] disputed questions of fact proceeded to trial. Based on its findings, the court concluded that the taxpayer, a firm employing professional engineers, had not engaged in qualified research, and was not entitled to research credits.
Smith: The Architectural Case: In Smith, the IRS continued to apply the “funding exception” to disallow federal income tax credits for a taxpayer’s qualified research activities. The “funding exception excludes from credit-eligible qualified research “any research to the extent funded by … contract…by another person….”[3]
Research is funded if the client’s payment to the taxpayer is not contingent on the success of the taxpayer’s research activities.[4] Research is also funded if the taxpayer does not retain substantial rights in the research.[5]
The taxpayer was a member in a limited liability partnership that sold its “innovative architectural design services” worldwide to its clients.[6] The taxpayer asserted that it conducted credit-eligible research to formulate architectural designs as required by contract with its clients. The IRS denied the credits on the theory that the clients funded the taxpayer’s research activities.
Relying on selective provisions in contracts between the taxpayer and its clients, the IRS moved for summary judgment on the theory that the taxpayer was contractually required to perform its architectural services in accordance with professional standards, which alone did not put the taxpayer at risk if its research to effectuate the designs failed. The court ruled, however, that the contracts tended to provide that the clients were obligated to pay the taxpayer only if the taxpayer satisfied design milestones, which raised an issue about whether payment to the taxpayer was contingent on success of the research.
The court also ruled that local law provisions appeared to vest copyright protection for the designs in the taxpayer, which tended to rebut the IRS argument that the taxpayer did not retain substantial rights in the research, and thus preserved for trial the issue of retention of substantial rights in its research.[7]
Phoenix Design: The Engineering Case: In Phoenix Design, the IRS successfully argued that the taxpayer, a firm employing professional engineers, failed to prove that it engaged in qualified research to design mechanical (air handling), electrical, plumbing, and fire protection systems (“MEPF Systems”) for laboratory and hospital building projects.
Research is qualified if it passes a “four-part test.”[8] At issue in Phoenix Design are only Test One – the Section 174 Test – and Test Four – the Process of Experimentation Test. The Section 174 Test requires a taxpayer to (i) identify uncertainty in the development or improvement of a product, process, technique, or formula and (ii) show that this uncertainty exists because the information objectively available does not establish the capability or method to develop or improve the product, process, technique, or formula or its appropriate design. The Process of Experimentation Test requires a taxpayer to use a process that is capable of evaluating one or more alternatives, for example, modeling, simulation, or a systematic trial and error methodology.
In Phoenix Design, the taxpayer argued that its professional engineers met the Section 174 Test by eliminating uncertainty in the design of the MEPF Systems. The taxpayer explained that, at the outset of the projects, it was uncertain about the specifications and designs that would achieve the air handling and other attributes of the systems, and that it intended to eliminate the uncertainty by performing sophisticated and iterative engineering calculations.
The court rejected the argument. The Section 174 Test requires investigatory activity, that is, the attempted acquisition of information. The court cited e-mails and meetings as examples of processes of acquiring information, but only if there is uncertainty about developing or improving the product. However, “basic calculations on available data is [sic] not an investigative activity because the taxpayer already has all the information necessary to address that unknown.” Moreover, the taxpayer “failed to identify the specific information that was not available to PDG [the taxpayer’s] engineers at the start of the project.”
For the Process of Experimentation Test, the taxpayer argued that it performed iterative calculations to determine the appropriate designs of the MEPF Systems, but the court rejected the argument because “performing calculations and communicating the results to the architect is not an evaluative process that mirrors the scientific method.”[9]
Comment: An architectural or engineering service is not intrinsically precluded from qualifying for research credits. The service may constitute a “business component,” which includes a process, technique, or formula. [10] The business component need not be a tangible product to quality for tax credits.
Care should be taken to ensure that the agreement between a service provider and its client does not inadvertently use terminology that, from the IRS perspective, mistakenly appears to disqualify the research – as could have occurred in Smith. Also, activities intended to eliminate technological uncertainty through a rigorous engineering process should be carefully documented when they occur or soon thereafter to avoid the documentation deficiency that occurred in Phoenix Design. And note that a showing of the brilliance of a scientist or engineer will not qualify the research for tax credits. The taxpayer must still work through the statutory provisions and clearly show the IRS and court how the activities satisfy these provisions.

[1] No. 13382-17 (U.S. Tax Ct. Dec. 18, 2024).
[2] T.C. Memo. 2024-113 (Dec. 23, 2024).
[3] I.R.C. §41(d)(4)(H).
[4] The rationale is that the taxpayer is not the researcher because the taxpayer is not at economic risk for the success of the research.
[5] The rationale is dubious. See “Tax Court Denies Research Credits for Research Activities,” https://natlawreview.com/article/tax-court-denies-research-credits-research-activities (Feb. 9, 2021).
[6] The architectural services at issue were for six projects located in Dubai, UAE, and Saudi Arabia.
[7] Retention of “other intellectual property rights” was an additional basis to deny the IRS’s motion for the Kingdom Tower, one of the architectural projects.
[8] (i) The expenditures may be deductible under I.R.C. §174. The deduction is available if the taxpayer’s activities are of an investigative nature that are intended to discover information that would eliminate uncertainty in development or improvement of a product, process, technique, or formula. The Tax Cuts and Jobs Act, Pub. L. 115-97, now requires that the expenditures be specified research and experimental expenditures, which are amortizable rather than currently deductible.
(ii) The expenditure is intended to discover information that is technological.
(iii) The information to be discovered is intended to develop or improve a product, process, technique, or formula.
(iv) Substantially all the research activities constitute elements of a process of experimentation for the purpose of developing or improving new or improved function, performance, reliability, or quality of the product, process, technique, or formula.
[9] The taxpayer’s failing was primarily one of documentation of its engineers’ activities. The fault may lie, however, not with the taxpayer’s trial preparation but with a flaw in the Congressional design of the credit. Congress intended the credit be available to businesses that “apply” scientific principles to develop or improve products. Congress did not require taxpayers to discover basic scientific principles to claim the credit. However, Congress left the door open to the IRS to require a taxpayer to document its applied research as it the research were “basic research.” Businesses that apply research often do not think of documenting their applied research as if it were basic research.
[10] I.R.C. §41(d)(2)(B)

Weekly IRS Roundup December 23 – December 27, 2024

Check out our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of December 23, 2024 – December 27, 2024.
December 23, 2024: The IRS released Internal Revenue Bulletin 2024-52, which includes the following:

Treasury Decision 10015: These final regulations update the previous regulations under Section 48 of the Internal Revenue Code (Code), which provides for an investment tax credit for energy property (energy credit), and respond to changes made by the Inflation Reduction Act of 2022 (IRA).

The final regulations update the types of energy property eligible for the energy credit, including additional types of energy property added by the IRA; clarify the application of new credit transfer rules to recapture because of failure to satisfy the prevailing wage requirements, including notification requirements for eligible taxpayers; and include qualified interconnection costs in the basis of certain lower-output energy properties.
The final regulations also provide rules generally applicable to energy property, such as rules regarding functionally interdependent components, property that is an integral part of an energy property, application of the “80/20 rule” to retrofitted energy property, dual use property, ownership of components of an energy property, energy property that may be eligible for multiple federal income tax credits, and the election to treat qualified facilities eligible for the renewable electricity production credit under Code Section 45 as property eligible for the energy credit.

Notice 2024-82, which sets forth the 2024 Required Amendments List. The list applies to both individually designed plans under Code Section 401(a) and individually designed plans that satisfy the requirements of Code Section 403(b).
Notice 2024-86, which announces the extension of certain timeframes under the Employee Retirement Income Security Act of 1974 and the Code for group health plans; disability and other welfare plans; pension plans; and participants, beneficiaries, qualified beneficiaries, and claimants of these plans affected by Hurricane Helene, Tropical Storm Helene, or Hurricane Milton.
Revenue Procedure 2024-42, which updates the list of jurisdictions with which the United States has in effect a relevant information exchange agreement or an automatic exchange relationship under Treasury Regulation §§ 1.6049-4(b)(5) and 1.6049-8(a).
Announcement 2024-42, which provides a copy of the competent authority arrangement entered into by the competent authorities of the US and the Kingdom of Norway under paragraph 2 of Article 27 (Mutual Agreement Procedure) of the Convention between the US and Norway for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Property, signed on December 3, 1971.
The IRS issued a notice of proposed rulemaking, setting forth proposed regulations related to the definition of “qualified nonpersonal use vehicles.” Qualified nonpersonal use vehicles are excepted from the substantiation requirements that apply to certain listed property. The proposed regulations add unmarked vehicles used by firefighters or members of a rescue squad or ambulance crew as a new type of qualified nonpersonal use vehicle. The regulations affect governmental units that provide firefighter or rescue squad or ambulance crew member employees with unmarked qualified nonpersonal use vehicles and the employees who use those vehicles. Comments on the proposed regulations are due by March 3, 2025.
The IRS acquiesced to Green Rock LLC v. Internal Revenue Serv., 104 F.4th 220 (11th Cir. 2024). In that case, the US Court of Appeals for the Eleventh Circuit held that notices identifying certain conservation easement arrangements as reportable transactions are invalid under the Administrative Procedure Act because they failed to follow notice-and-comment rulemaking procedures.

December 23, 2024: The US Department of the Treasury and the IRS released final regulations regarding supervisory approval of penalties assessed pursuant to Code Section 6751(b). Section 6751(b) provides that no penalty “shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination….” The final regulations clarify the application of Section 6751(b) as to the timing of supervisory approval, the identities of the individual who first proposes the penalty and their supervisor, the requirement that the approval be “personally approved (in writing)” by the supervisor, and other aspects of the statute.
December 27, 2024: The IRS announced via Notice 2025-3 transitional relief with respect to the reporting of information and backup withholding on digital assets for digital asset brokers providing trading front-end services.

HUD’s Proposed ORCA Program – A New Option for Earlier Mortgagee Reimbursement

On December 19, 2024, the Fair Housing Administration (FHA) and the U.S. Department of Housing and Urban Development (HUD) published a draft Mortgagee Letter proposing a new Optional Reimbursement Claim Alternative (ORCA) program. ORCA is intended to allow mortgagees to seek reimbursement for property tax and insurance payments the mortgagee advances on behalf of forward mortgage borrowers before the final claim payment.
Overview of ORCA
As outlined in the draft Mortgagee Letter, ORCA enables mortgagees to file early claims for reimbursement of advances made toward property taxes, hazard insurance, and flood insurance on defaulted forward mortgages. Currently, these costs are reimbursed only after the final resolution of a claim to HUD, meaning mortgagees are required to incur significant upfront costs for an uncertain period of time. The draft Mortgagee Letter recognizes that in the current higher interest rate environment these upfront costs are potentially exacerbating mortgagee liquidity issues.
If enacted, ORCA will allow mortgagees to make multiple claims during a single default episode. The term “single default episode” is not defined, but given FHA’s definition of “default,” a “single default episode” would likely encompass the period in which a borrower is at least 30 days delinquent under the mortgage until the borrower cures the delinquency. For a single default episode, mortgagees can claim up to 48 months of payments for eligible expenses, provided they meet the following eligibility requirements:

All property taxes and insurance obligations are paid before the due date;
The escrow funds intended for these expenses “were exhausted and were inadequate to meet these obligations;”
The delinquency/default code accurately reflects that the relevant mortgage has been in default for at least six months; and
The maximum allowable ORCA claims have not already been filed for a particular default.

In addition to the eligibility requirements above, mortgagees should be aware that initial ORCA claims can be submitted six months from the initial date of default, with subsequent claims allowed “no less than six months from the date the previous ORCA was filed.” Additionally, mortgagees will be required to maintain copies of all ORCA claims, as well as detailed servicing and transaction histories supporting the amounts claimed. Mortgagees should be sure to review the draft Mortgagee Letter to get a better understanding of the detailed proposed changes to the FHA Single Family Housing Policy Handbook related to the implementation of the ORCA program.
Takeaways
ORCA appears to offer mortgagees a positive new avenue for FHA claims that will likely ease liquidity pressures during the mortgage servicing process. By facilitating earlier reimbursement, HUD seems to recognize the need to mitigate the financial burdens mortgagees face and better position them to effectively service FHA mortgages. In light of the potential impact ORCA could have, we encourage mortgagees and other industry participants to review the draft Mortgagee Letter announcement and to provide feedback by the response deadline of March 3, 2025.
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The Tax Court Recently Decides Two Research Credit Cases One Favorable on Funding (Smith) and One Unfavorable on the Four-Part Test (Phoenix Design Group)

Taxpayers had mixed success in two recent research credit cases in the United States Tax Court.
In Smith v. Commissioner,[1] the taxpayer was an architectural firm. The Tax Court denied the Commissioner’s motion for summary judgment, allowing the case to proceed to trial on the issue of whether the taxpayer’s clients funded its research activities.
In Phoenix Design Group, Inc. v. Commissioner,[2] disputed questions of fact proceeded to trial. Based on its findings, the court concluded that the taxpayer, a firm employing professional engineers, had not engaged in qualified research, and was not entitled to research credits.
Smith: The Architectural Case: In Smith, the IRS continued to apply the “funding exception” to disallow federal income tax credits for a taxpayer’s qualified research activities. The “funding exception excludes from credit-eligible qualified research “any research to the extent funded by … contract…by another person….”[3]
Research is funded if the client’s payment to the taxpayer is not contingent on the success of the taxpayer’s research activities.[4] Research is also funded if the taxpayer does not retain substantial rights in the research.[5]
The taxpayer was a member in a limited liability partnership that sold its “innovative architectural design services” worldwide to its clients.[6] The taxpayer asserted that it conducted credit-eligible research to formulate architectural designs as required by contract with its clients. The IRS denied the credits on the theory that the clients funded the taxpayer’s research activities.
Relying on selective provisions in contracts between the taxpayer and its clients, the IRS moved for summary judgment on the theory that the taxpayer was contractually required to perform its architectural services in accordance with professional standards, which alone did not put the taxpayer at risk if its research to effectuate the designs failed. The court ruled, however, that the contracts tended to provide that the clients were obligated to pay the taxpayer only if the taxpayer satisfied design milestones, which raised an issue about whether payment to the taxpayer was contingent on success of the research.
The court also ruled that local law provisions appeared to vest copyright protection for the designs in the taxpayer, which tended to rebut the IRS argument that the taxpayer did not retain substantial rights in the research, and thus preserved for trial the issue of retention of substantial rights in its research.[7]
Phoenix Design: The Engineering Case: In Phoenix Design, the IRS successfully argued that the taxpayer, a firm employing professional engineers, failed to prove that it engaged in qualified research to design mechanical (air handling), electrical, plumbing, and fire protection systems (“MEPF Systems”) for laboratory and hospital building projects.
Research is qualified if it passes a “four-part test.”[8] At issue in Phoenix Design are only Test One – the Section 174 Test – and Test Four – the Process of Experimentation Test. The Section 174 Test requires a taxpayer to (i) identify uncertainty in the development or improvement of a product, process, technique, or formula and (ii) show that this uncertainty exists because the information objectively available does not establish the capability or method to develop or improve the product, process, technique, or formula or its appropriate design. The Process of Experimentation Test requires a taxpayer to use a process that is capable of evaluating one or more alternatives, for example, modeling, simulation, or a systematic trial and error methodology.
In Phoenix Design, the taxpayer argued that its professional engineers met the Section 174 Test by eliminating uncertainty in the design of the MEPF Systems. The taxpayer explained that, at the outset of the projects, it was uncertain about the specifications and designs that would achieve the air handling and other attributes of the systems, and that it intended to eliminate the uncertainty by performing sophisticated and iterative engineering calculations.
The court rejected the argument. The Section 174 Test requires investigatory activity, that is, the attempted acquisition of information. The court cited e-mails and meetings as examples of processes of acquiring information, but only if there is uncertainty about developing or improving the product. However, “basic calculations on available data is [sic] not an investigative activity because the taxpayer already has all the information necessary to address that unknown.” Moreover, the taxpayer “failed to identify the specific information that was not available to PDG [the taxpayer’s] engineers at the start of the project.”
For the Process of Experimentation Test, the taxpayer argued that it performed iterative calculations to determine the appropriate designs of the MEPF Systems, but the court rejected the argument because “performing calculations and communicating the results to the architect is not an evaluative process that mirrors the scientific method.”[9]
Comment: An architectural or engineering service is not intrinsically precluded from qualifying for research credits. The service may constitute a “business component,” which includes a process, technique, or formula. [10] The business component need not be a tangible product to quality for tax credits.
Care should be taken to ensure that the agreement between a service provider and its client does not inadvertently use terminology that, from the IRS perspective, mistakenly appears to disqualify the research – as could have occurred in Smith. Also, activities intended to eliminate technological uncertainty through a rigorous engineering process should be carefully documented when they occur or soon thereafter to avoid the documentation deficiency that occurred in Phoenix Design. And note that a showing of the brilliance of a scientist or engineer will not qualify the research for tax credits. The taxpayer must still work through the statutory provisions and clearly show the IRS and court how the activities satisfy these provisions.
[1] No. 13382-17 (U.S. Tax Ct. Dec. 18, 2024).
[2] T.C. Memo. 2024-113 (Dec. 23, 2024).
[3] I.R.C. §41(d)(4)(H).
[4] The rationale is that the taxpayer is not the researcher because the taxpayer is not at economic risk for the success of the research.
[5] The rationale is dubious. See “Tax Court Denies Research Credits for Research Activities,” https://www.millercanfield.com/resources-Tax-Court-Tangel-Commissioner.html (Feb. 9, 2021).
[6] The architectural services at issue were for six projects located in Dubai, UAE, and Saudi Arabia.
[7] Retention of “other intellectual property rights” was an additional basis to deny the IRS’s motion for the Kingdom Tower, one of the architectural projects.
[8] (i) The expenditures may be deductible under I.R.C. §174. The deduction is available if the taxpayer’s activities are of an investigative nature that are intended to discover information that would eliminate uncertainty in development or improvement of a product, process, technique, or formula. The Tax Cuts and Jobs Act, Pub. L. 115-97, now requires that the expenditures be specified research and experimental expenditures, which are amortizable rather than currently deductible.
(ii) The expenditure is intended to discover information that is technological.
(iii) The information to be discovered is intended to develop or improve a product, process, technique, or formula.
(iv) Substantially all the research activities constitute elements of a process of experimentation for the purpose of developing or improving new or improved function, performance, reliability, or quality of the product, process, technique, or formula.
[9] The taxpayer’s failing was primarily one of documentation of its engineers’ activities. The fault may lie, however, not with the taxpayer’s trial preparation but with a flaw in the Congressional design of the credit. Congress intended the credit be available to businesses that “apply” scientific principles to develop or improve products. Congress did not require taxpayers to discover basic scientific principles to claim the credit. However, Congress left the door open to the IRS to require a taxpayer to document its applied research as it the research were “basic research.” Businesses that apply research often do not think of documenting their applied research as if it were basic research.
[10] I.R.C. §41(d)(2)(B).

Navigating the UTPR and ISDS: Implications in the EU

Overview

The global tax landscape is experiencing a profound transformation as the OECD/G20’s Pillar Two rules are adopted. Among these, the Undertaxed Profits Rule (UTPR) has emerged as a pivotal mechanism designed to ensure that multinational enterprises are subject to a minimum effective tax rate of 15% on their global profits. For those companies operating within the European Union, the implementation of the UTPR presents both a significant compliance challenge and a strategic risk.
In this client alert, we offer an analysis of the operational framework of the UTPR, examine its potential ramifications for businesses within the EU, and explain how Investor-State Dispute Settlement (ISDS) mechanisms can play a pivotal role in resolving disputes arising from this innovative tax measure for States and multinational enterprises.

In Depth

WHAT IS THE UTPR?
The Undertaxed Profits Rules, integral to the broader Pillar Two framework, complements the Income Inclusion Rule (IIR) by addressing low-taxed profits that are otherwise not subject to taxation under the IIR. Its primary objective is to bridge gaps in the taxation of multinational enterprises, ensuring that all group entities contribute a minimum level of tax.
Under the UTPR, jurisdictions may levy top-up taxes on low-taxed income that is not otherwise captured by the IIR. This mechanism functions by reallocating taxing rights among jurisdictions, effectively serving as a safeguard against base erosion and profit shifting.
In the EU, the UTPR has been codified through the Directive on Global Minimum Taxation, which was adopted in December 2022. Member States were required to implement the directive into domestic law by December 31, 2023, with UTPR application commencing in 2025.
THE ROLE OF INVESTOR-STATE DISPUTE SETTLEMENT (ISDS)
The implementation of the UTPR raises critical questions regarding its interplay with international investment law, particularly within the framework of bilateral investment treaties (BITs), multilateral investment treaties (such as the Comprehensive Economic and Trade Agreement), and other investment agreements.
1. Understanding ISDS Protections
Tax disputes have been a longstanding component of ISDS. According to the United Nations Conference on Trade and Development, from 1987 to 2021 more than 150 ISDS cases were initiated to challenge tax measures. During this period, the proportion of ISDS cases involving tax measures doubled. Additionally, some of the most substantial ISDS awards to date, notably those stemming from the Yukos saga, have originated from investors contesting taxation measures.
ISDS mechanisms are designed to safeguard foreign investors from adverse actions by host states. They offer recourse to arbitration for claims arising from alleged breaches of investment treaty obligations, such as:

Fair and Equitable Treatment (FET): Investors might be able to challenge allegedly arbitrary or inconsistent enforcement of the UTPR as a violation of the FET standard.
Expropriation: Purportedly excessive taxation under the UTPR might be argued to constitute indirect expropriation of an investor’s assets.
Non-Discrimination: Investors might be able to allege breaches of non-discrimination clauses if the UTPR disproportionately impacts foreign entities compared to domestic businesses.

Additionally, foreign investors may seek provisional measures designed to safeguard the parties’ rights pending a definitive resolution on the merits. For instance, Article 47 of the ICSID Convention provides that “the Tribunal may […] recommend any provisional measures which should be taken to preserve the respective rights of either party.” A comparable provision exists under the UNCITRAL Arbitration Rules as well.
2. Potential Hurdles 
Investors bringing claims based on the UTPR may encounter several potential hurdles.
First, the availability of a suitable treaty protecting foreign investments is not guaranteed. Despite the existence of thousands of BITs and other multilateral agreements globally, foreign investors from a particular country of origin may not enjoy protection in every jurisdiction in which they choose to invest. And even where a treaty exists, they are not all the same (as explained in more detail below) and, therefore, even where a treaty is otherwise available, it may not provide coverage. This lack of universal coverage can expose investors to significant risks, as they may find themselves without recourse to the protections typically afforded by such treaties. As a result, investors must conduct thorough due diligence to determine the existence and applicability of investment treaties in their target jurisdiction(s) to mitigate potential vulnerabilities and ensure that their investments are protected. Similarly, host States may be able to take measures to proactively address and resolve these disputes at an early stage.
Second, certain BITs incorporate a tax carve-out, thereby excluding specific protections for tax matters under the relevant treaty. While older-generation investment treaties typically lack such provisions, contemporary BITs increasingly include them. Nevertheless, even with a tax carve-out, the precise wording of these provisions, alongside the factual circumstances triggering the dispute, remains crucial. Additionally, several tribunals have adjudicated that tax carve-outs may only pertain to “bona fide taxation actions,” which adds an additional layer of complexity.
Third, BITs may impose procedural prerequisites on investors. For instance, some treaties feature a “fork-in-the-road” clause, permitting an investor to pursue claims either in domestic courts or through investment arbitration, but not both. Consequently, under certain conditions and depending on the exact language of the BIT, an investor might be precluded from initiating an ISDS claim if a domestic claim against the same tax measure has already been pursued. Conversely, other BITs mandate the exhaustion of local remedies prior to commencing arbitration.
Fourth, investors might be able to lodge ISDS claims contingent upon the specific factual matrix involved. The success of such claims will hinge on how Pillar Two and the UTPR have been implemented by a particular State and the resultant impact on foreign investors. Similarly, the specific implementation of the UTPR by States in the coming years will also be a critical factor in determining the viability of an ISDS claim. Investors may also have a viable case if the implementation of Pillar Two contravenes their legitimate expectations regarding the applicable fiscal framework and its duration. However, States may present robust defenses. BITs not only may include a tax carve-out but also might intersect with other international agreements, such as double taxation treaties. A State confronted with an ISDS claim on these grounds will likely invoke its regulatory authority, which, although not absolute, may encompass the introduction of new, good-faith tax measures. All the above are also issues for States to consider in the implementation of their UTPR-related taxation measures.
CONCLUSION
The UTPR represents a paradigm shift in international taxation, with profound implications for multinational enterprises operating in the EU and States alike. As States advance with their implementation of the UTPR, businesses and States must navigate a complex and evolving landscape of compliance obligations, risks, and opportunities.
Simultaneously, the intersection of the UTPR with international investment law underscores the critical importance of leveraging ISDS mechanisms for foreign investors to protect against the unfair or discriminatory application of these rules, and for host States to defend against such claims. By adopting proactive measures and seeking advice from counsel multinational enterprises can mitigate risks, safeguard their investments, and position themselves for long-term success in a rapidly changing tax environment. Similarly, host States can anticipate potential treaty claims raised by foreign investors and proactively address these disputes at an early stage.

Preparing for a Restaurant Financing or Sale Transaction: Considerations for 2025

Go-To Guide:

Restaurant Industry Observations for 2025 
The Importance of ‘Transaction Fitness’ 
Corporate/Company Documentation 
Intellectual Property/Trademarks 
Leases/Real Estate

Employees and Labor-Related Matters 
Tax 
Licenses & Permits 
Material Contracts 
Information Privacy and Security Laws 
Franchising Matters

Restaurant leaders and investors enter 2025 with cautious transaction optimism. As expected, 2024 proved a challenging year for many restaurant groups. Inflation, new legislation in parts of the country (i.e., the FAST Act in California and elimination of the tip credit in some markets), cost-conscious consumers, and escalating labor and food costs kept operators scrambling on multiple fronts. 
Although challenges may persist in 2025, the prevailing sentiment among some operators and investors is that the business climate will improve and transaction activity may increase.
This may serve as welcome news for restaurant businesses seeking to engage in a sale or financing process.
As we focus on our New Year’s resolutions, for those restaurant businesses contemplating a transaction in 2025, a commitment to getting your company in “transaction shape” is a worthy goal.  
Continue reading the full GT Advisory.
 
Additional Authors: Alison R. Weinberg-Fahey, Ryan C. Bykerk, Jason B. Jendrewski, Alicia Sienne Voltmer, Ellen M. Bandel, Joseph J. Curran, Jeffrey K. Ekeberg, David A. Zetoony, Kyle C. Lennox, David W. Oppenheim, and Breton H. Permesly

€13B Apple Tax Case

€13B Apple Tax Case. On Tuesday, the highest court in the European Union dismissed Apple’s last legal appeal against an order from the bloc’s executive commission to repay 13 billion euros in overdue taxes to Ireland. The European Court of Justice has overturned a prior ruling made by a lower court in this matter, stating that […]

Protecting Your Rights: Expert Guidance from a Seasoned Tax Attorney in Washington, DC

Navigating the labyrinth of tax laws and regulations in a major political hub can be daunting for any individual or business entity. The intricacies of tax legislation are magnified in such a setting, where local and federal laws intersect and evolve constantly. In this environment, the advice and guidance of a seasoned tax appeal lawyer […]

The Dirty Dozen of the IRS: A Guide for Tax Season

As we enter another tax season, we must remain alert to the numerous pitfalls that can trap the unwary taxpayer….
The post Navigating the Perils of Tax Season: A Guide to the IRS “Dirty Dozen” appeared first on Vegas Legal Magazine.