This transcript has been edited for clarity.

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: Lisbon lowdown.

This week the podcast team is in Lisbon, Portugal for the International Fiscal Association's Annual Congress. This five-day conference is one of the biggest in the international tax world, resulting in a significant amount of tax news.

Fortunately for you, our listeners, one of our on-the-ground reporters, Sarah Paez, sat down with our producer here, Jordan Parrish, to share the latest news and highlights from the event. You might also hear a few tidbits on how the Tax Notes team spent some of their off-hours, including recording some of the sounds of the city, which you heard at the beginning of the episode.

We'll be releasing more interviews from the congress in the coming weeks, so keep an eye out on your podcast feed. For now, let's go to Sarah's interview with Jordan.

Jordan Parrish: Hey Sarah, welcome back to the podcast.

Sarah Paez: Hey, Jordan. It's good to be back. It's been awhile.

Jordan Parrish: Yeah, it's great to have you. And I'm not normally on mic either, so this is a fun experience for both of us today.

So let's go ahead and set the stage of what has been happening here. You are one of our reporters that came to IFA along with Chief Correspondent Stephanie Soong and EU reporter Elodie Lamer. So what kind of topics were on the agenda for this big conference?

Sarah Paez: Well, pillar 2 was a hot topic, especially how the OECD is going to deal with the U.S. side-by-side system, but we also had updates on transfer pricing, arbitration and dispute resolution, some upcoming EU tax legislation, corporate income tax residency issues, and how governments are using ESG standards and tax.

Jordan Parrish: Well, all of that sounds great, and it seemed to me like everyone wanted to talk about pillar 2, and I was just at our Tax Notes booth most of the time. So let's get more into those OECD updates. Specifically the highlights regarding pillar 2.

Sarah Paez: So probably the biggest news in the pillar 2 space was inclusive framework co-chair Tim Power confirming that OECD delegates are on track to reach an agreement very soon on a G7 proposal to exempt U.S. multinational groups from some pillar 2 global minimum tax rules, and that's what we're referring to as the side-by-side system. And also, work is still underway at the inclusive framework on a permanent safe harbor that's going to replace the transitional country-by-country safe harbor under the pillar 2 rules, with delegates trying to design rules that guard against its abuse.

But not everyone is excited about the side-by-side system for U.S. companies. European Commission official Ioanna Mitroyanni said that EU countries' qualified domestic minimum top-up taxes under pillar 2 should take priority over U.S. minimum tax rules under the U.S. global intangible low-taxed income regime, which is otherwise known as GILTI. And now we also heard from many people from other countries, practitioners, that we might start seeing other countries try to seek similar side-by-side assurances for their pillar 2 adjacent rules.

Jordan Parrish: And how about transfer pricing? I know that also came up a lot during the panels.

Sarah Paez: Yeah, so the biggest update there is that the OECD is aiming to have a discussion draft ready by spring 2026 on updates to chapter 7 of its transfer pricing guidelines. So according to OECD Transfer Pricing Head Manuel de los Santos, the updates are going to clarify guidance on high-value-added services and application of the benefits tests and different transfer pricing methods. This also relates a lot to the work that the OECD is doing on global mobility and trying to solve tax issues that are cropping up around that.

Jordan Parrish: OK. And the OECD isn't the only one with transfer pricing news, right? There was some more going on.

Sarah Paez: Exactly. Brazilian tax authority representatives announced that they're finalizing a new advanced pricing agreement program to improve dispute resolution within their transfer pricing regime.

Jordan Parrish: OK, so dispute resolution, what else did you hear about that?

Sarah Paez: So the OECD Forum on Tax Administration is working to revise its manual on effective mutual agreement procedures, which are also known as MAP, with arbitration guidance for countries that want to eventually adopt the system. And there was also some talk from Swiss and U.K. officials about how offering capacity building to developing countries would help the U.N. committee that's negotiating a framework convention on international tax cooperation to build new dispute resolution rules that are better.

Jordan Parrish: Alright. And moving to the EU, since I know that was another big topic, what are the updates from there?

Sarah Paez: Well, Mitra Jani, who's from the European Commission, gave an update on EU tax simplification and decluttering efforts. This has been a big thing that the EU Commission is focusing on right now. So she said that the EU's upcoming tax omnibus bill is going to focus heavily on the interest deduction limitation rule of the bloc's anti-tax-avoidance directive, which is also known as ATAD. The commission plans to propose simplifications to all of its tax directives in the second half of 2026. So it's a busy time for them.

On the judicial side, Juliane Kokott, the advocate general of the EU's Court of Justice, raised some possible issues with the legal basis of ATAD and other EU legislative proposals that are linked to tax that observers should definitely be keen to look out for.

Jordan Parrish: Alright. And how about the rest of the conference? I know so much that we were here for five days. Are there any other updates?

Sarah Paez: Yeah, there's definitely a few small ones here and there. So the OECD Center for Tax Policy and Administration Deputy Director Achim Pross said that the organization is working on two initiatives: one to help tax administrations use AI responsibly, and another to provide tax policy guidance on tackling income inequality.

I also learned that company ratings on environmental, social, and governance commitments, which are also known as ESG commitments, don't follow any standard. And so some practitioners and researchers have concerns with their usage in market and tax decisions, but an HMRC [HM Revenue & Customs] representative assured them that the agency does not use those ESG ratings to inform its tax compliance risk analysis for businesses.

And I will leave you with this: At a panel about tax issues that stem from corporate residency, 86 percent of audience members who participated in an albeit informal poll said that the OECD and U.N. should harmonize residents for corporate income tax purposes. I think the only poll with more yes votes than that one was when I asked our team: "Should we get dessert now?"

Jordan Parrish: Yeah, well the custard tarts are pretty good here. There's a reason they are so famous. That actually was one of our first stops during our off-hours as we got to explore Lisbon, which I was blown away by. They truly are so delicious.

And then you and I actually met up one of the days at a really cool bookshop/record store/art gallery, which was at the LX Factory area, so that was also really fun. What else have you gotten up to around here?

Sarah Paez: Well, I've walked along the water every day since our hotel is right along the river, which is a huge treat. I also make it a goal to eat at McDonald's in every country that I visit. So now I can check off Portugal. What else have you done?

Jordan Parrish: Congratulations on the McDonald's achievement. That is really exciting. Dave and I went to the aquarium, which was amazing. I got to see a giant ray plus so many fish and sharks. And then he also got to see Magellanic penguins, which he's never seen before, and he is super into penguins, and we actually went last year to see penguins when we went to IFA in South Africa. So actually this is turning into a bit of a tradition for us to do.

I also have heard a lot about Lisbon's hills. So while we were out recording city sounds, which I know is somewhere at the beginning of the episode, I made it a point to hike up a very steep hill, so I could also check that off my to-do list.

Sarah Paez: Wow, congrats. You could have probably ridden a cable car too.

Jordan Parrish: Yeah, we didn't quite make it there. Next time. There's always more to do in Lisbon for sure. But for now, thank you so much, Sarah. It's been super fun spending a ton of time with you this week at the conference and then here also giving us all of the updates about what happened here at IFA this year.

Sarah Paez: It's my pleasure as always, Jordan.

David D. Stewart: That's it for this week. You can find me online @TaxStew, that's S-T-E-W, and be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.

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