US Must Lead Global AI-Driven Tax Transparency Standards Now

The US faces a strategic choice in whether to simply adapt to specifications developed elsewhere or lead in developing frameworks. global tax landscape shifts faster than most observers recognize. Twenty-two of 27 EU Member States implemented BEPS Pillar Two rules in 2025, creating unprecedented reporting complexity for multinational enterprises operating across dozens of jurisdictions. Tax Foundation, Pillar Two Implementation in Europe, 2025 (Oct. 2025).

The more fundamental challenge, though, lies beneath this regulatory expansion. Because countries lack a standardized infrastructure to enable machine-verifiable, cross-border tax data exchange.

Other jurisdictions are already building digital tax infrastructure and establishing standards that will govern cross-border information flows for decades. The implications for the US reach beyond administrative efficiency and may affect economic competitiveness and regulatory influence.

Infrastructure Gap

Cross-border patent licensing exposes the current system’s limitations rather starkly. Consider a Korean licensor and US licensee navigating bilateral treaty provisions to determine correct withholding rates—a process involving legal interpretation, documentation exchange, and frequent refund claims filed months later when initial withholding proves incorrect. Multiply this across 66 bilateral tax treaties and thousands of licensing agreements, and the scale becomes apparent: The average Mutual Agreement Procedure case requires 32 months to close, with nearly 24% exceeding four years. OECD, OECD releases information and statistics on Mutual Agreement Procedures and Advance Pricing Arrangements (Nov. 15, 2024).

These delays don’t represent anomalies—they reflect structural inadequacy. We’re processing 21st century compliance demands through systems designed for paper-based workflows.

Pillar Two has amplified this strain exponentially. Companies with revenue exceeding 750 million euros ($764 million) now must calculate effective tax rates in every operating jurisdiction and remit top-up taxes where rates fall below 15%. The compliance burden is substantial, but complexity isn’t really the core problem. What’s missing is the digital infrastructure necessary to make modern cross-border tax administration work.

Manual reconciliation of patent royalty payments flowing through multiple jurisdictions consumes thousands of hours annually at large multinationals. So the question becomes: What kind of framework would enable automation at scale?

Agentic AI–Digital Tax Transparency Framework

An agentic AI–digital tax transparency framework, or AIDTTF, tackles this challenge through integrated components designed to transform manual reconciliation into machine verification. The framework deploys specialized AI agents—autonomous software systems handling distinct aspects of tax administration—to process cross-border transactions with minimal human intervention.

Three functional layers make this work. A verification layer handles contract analysis, treaty rule application, and automated withholding calculations. Rather than requiring a manual interpretation of licensing agreements, AI agents parse contract terms and apply correct withholding rates based on bilateral treaty provisions.

For royalty payments from Korea to the US, the system automatically applies reduced treaty rates rather than statutory 15% withholding—eliminating those multi-month refund processes.

A valuation layer provides transfer pricing validation through continuous market benchmarking. By comparing royalty rates against market data in real time, the system catches potential transfer pricing issues before they escalate into mutual agreement procedure, MAP, disputes. This proactive approach addresses concerns well before competent authority intervention becomes necessary.

A transparency layer creates immutable audit trails accessible to relevant stakeholders, enabling real-time Organisation for Economic Cooperation and Development BEPS reporting. Tax authorities can verify compliance contemporaneously with underlying transactions rather than reconstructing histories months or years later.

Working in parallel across these layers, the system reduces complex MAP case resolutions from 18 months or longer to roughly 90 days. This happens primarily by eliminating manual handoffs and enabling simultaneous processing across multiple jurisdictions.

Missing Foundation: Treaty Interoperability

Implementation confronts a foundational problem that’s received surprisingly little attention. Every bilateral tax treaty employs different article numbering, paragraph structures, and terminology to address functionally equivalent provisions. Article 14 of the US–Korea tax treaty and Article 12 of the US–UK tax treaty both govern the taxation of royalties, but there’s no standardized mechanism to communicate this equivalence to automated systems.

A cross-treaty mapping table—think of it as a Rosetta Stone for tax treaties—would provide the missing infrastructure. This standardized reference system, potentially managed by the OECD Forum on Tax Administration, would assign common codes to functionally equivalent treaty provisions. With such mapping, software could apply treaty rules consistently across jurisdictions without requiring manual interpretation of each treaty’s unique structure.

The technical foundation requires a unified royalty data schema, URDS—basically a common format for structuring and transmitting royalty transaction data. Rather than each jurisdiction demanding different reporting specifications, a single standard enables interoperability. For patent pool administrators managing payments to more than 50 licensors across more than 30 countries, URDS makes the difference between manageable compliance and administrative impossibility.

Quantifiable Impact

The framework addresses concrete pain points in current administration. Industry analysis suggests that global standard-essential patent (SEP) licensing revenues alone exceed €11 billion (over $12 billion) annually among documented licensors and patent pools, even before accounting for many smaller licensors whose revenues are not publicly disclosed. These royalty flows involve thousands of licensors and tens of thousands of licensees across multiple jurisdictions.

Manual processes currently require extensive time and resources for complex cross-border transactions, with compliance teams devoting significant effort to treaty research, documentation validation, and withholding tax calculations across more than 40 jurisdictions. Annual tax leakage represents billions trapped in foreign tax systems globally, with the European Commission estimating €5.5 billion remains unclaimed annually in the EU alone. Tax leakage refers to tax amounts that are over-withheld or otherwise not recovered due to administrative inefficiencies, including unclaimed treaty benefits and delayed refund processes.

Automated verification and standardized data structures could reduce administrative effort and significantly accelerate processing timelines compared with manual, paper-based workflows. The framework also provides tax authorities with verification capabilities needed to ensure compliance without imposing unsustainable burdens on taxpayers.

US Strategic Advantages

The US has natural advantages in this standards competition. The US leads global software markets with $159.39 billion projected 2025 revenue, while SAP, Oracle, and Microsoft dominate enterprise software. Statista, Enterprise Software - United States | Market Forecast (Nov. 2025); Statista, Enterprise software - statistics & facts (June 23, 2025). The Treasury Department and the IRS maintain sophisticated data analytics capabilities. The dollar’s role in international commerce means US withholding tax reporting already serves as a global reference point.

What’s more, 75% of tax administrations worldwide have developed comprehensive data management strategies, with 85% now prefilling personal income tax returns using third-party data. OECD, Tax Administration Digitalisation and Digital Transformation Initiatives: Data management and standards (2025). Technical capacity exists—what’s missing is coordination around common standards.

These advantages won’t last forever, though. The EU’s ViDA (Vat in the Digital Age) initiative mandates structured e-invoicing for intra-EU B2B transactions from July 2030, requiring full harmonization by 2035. EDICOM Global, ViDA (VAT in the Digital Age) - The Council of the European Union Approves the VAT in the Digital Age Package (July 7, 2025). This isn’t just an EU rule—it becomes a de facto global standard for any company conducting European business. Delayed US action means we’ll end up implementing European specifications rather than our own frameworks.

Corporate adoption patterns signal clear readiness for change. According to Bloomberg Tax research, 80% of tax departments using AI-backed resources now complete in-house work previously outsourced to consultants. Bloomberg Tax, How Is AI Used in Tax and Accounting?, (Apr. 10, 2025). Companies already invest heavily in domestic compliance automation. Extending this to cross-border reporting represents a logical next step—but only if the infrastructure exists.

Three Implementation Priorities

The Treasury Department and the IRS can start creating a framework immediately without waiting for international coordination, and the Form 1042-S modernization initiative provides an ideal vehicle.

The Treasury Department should require Form 1042-S filers to submit data using standardized electronic formats that enable machine verification. The IRS would automatically validate submissions and reject noncompliant filings—basically a straightforward extension of existing electronic filing infrastructure.

With e-filing already predominant for Form 1042-S, a minimal burden would be imposed on sophisticated filers while creating immediate interoperability benefits. Annual updates would reflect treaty changes and new income codes.

The Treasury Department should convene a working group to develop the tax data schema specifications within the AIDTTF. Standardized tax data schema specifications are the technical blueprint defining how treaty provisions, withholding rates, and transaction data will be structured and exchanged across systems within the AIDTTF. IRS officials, technology providers, tax practitioners, and representatives from major treaty partners should be included with a target specification for completion within 12 months.

Bilateral data exchange agreements should be launched with key treaty partners to pilot machine-verifiable reporting starting with countries with high-volume relationships—the UK, Germany, Japan, and Korea. Public-private partnerships can speed up development and testing considerably.

Beyond Royalties: Strategic Extensibility

The tax data schema’s design builds in deliberate extensibility—a strategic architectural choice with real implications. The same format can integrate with transfer pricing master file data, enabling automatic cross-validation of royalty rates against comparable uncontrolled transactions.

Pillar Two compliance may be supported by providing the covered taxes and adjusted profits data that feed GloBE income calculations. Advance pricing arrangement, APA, and MAP data exchange may be facilitated by standardizing information that currently requires manual compilation from multiple sources.

This positions the schema not as some narrow fix for one compliance problem but as a foundational infrastructure for comprehensive cross-border tax administration. And this is exactly the kind of infrastructure where first-mover advantage translates into an enduring influence over global standards.

Cost of Inaction

The alternative scenario deserves serious consideration. Without US leadership, multiple incompatible reporting standards will emerge across jurisdictions. US companies will maintain parallel systems—domestic formats, European specifications, as well as Asian requirements. Costs will climb while data quality will deteriorate as information flows through multiple translation layers.

Fragmentation undermines tax certainty, as companies facing genuine uncertainty about contradictory reporting requirements may delay or abandon legitimate cross-border transactions. In an era of intensifying tax competition and geopolitical economic fragmentation, that kind of friction carries measurable economic costs.

From a strategic perspective, delayed action simply cedes standard-setting authority to other jurisdictions—not because the other countries are technically superior, but because they moved first. Early movers establish standards that everyone else adapts to later.

Closing Window

Current conditions create unusual receptivity to infrastructure investment. Treasury’s Form 1042-S modernization initiative provides real institutional momentum. The June 2025 G7 political agreement on Pillar Two demonstrates continued US influence in international tax negotiations. Tax Foundation, Pillar Two Implementation in Europe, 2025 (Oct. 2025). The business community, confronting Pillar Two compliance demands, shows unprecedented willingness to invest in digital infrastructure.

Strategic clarity is crucial. The US should develop and champion an API-based tax data schema for cross-border withholding reporting within the Agentic AI–Digital Tax Transparency Framework, starting with intellectual property royalties. Pilot programs should begin within 18 months, with full deployment to major treaty partners within three years.

The infrastructure for secure, real-time data exchange already exists—it’s been deployed successfully in the financial services and other regulated sectors. The question really comes down to institutional will: whether the US will coordinate this infrastructure’s application to cross-border tax administration before other jurisdictions establish competing standards.

In an increasingly digital global economy, technical standard-setting is a form of economic statecraft. The US still has the capability to lead here. But the window for exercising that leadership is open now and closing steadily.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Jiseon Lee is a Senior Manager in the Tax & Accounting division at Samsung Electronics, specializing in global IP-royalty taxation and AI-driven digital tax-transparency frameworks.