A revised international agreement maintains a minimum corporate tax of 15% while exempting US multinationals from key enforcement rules. That means the OECD deal will go ahead, but critics argue the deviations will weaken enforcement and reduce revenue.
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After years of negotiations, the Organization for Economic Co-operation and Development (OECD) announced a revised agreement on global minimum corporate taxes – a deal aimed at curbing the ability of large multinationals to shift profits to low-tax jurisdictions. While the framework remains in place, critics say the latest changes carve out protections for US companies that weaken the original goal.
You may recall that President Trump is not a fan of the tax deal. One of his first directives in his second term was to advise the Secretary of the Treasury, the US Trade Representative and the US Permanent Representative to the OECD to notify the organization that any commitments entered into by the previous administration “with respect to the Global Tax Agreement shall have no force or effect within the United States absent an act of Congress approving the relevant provision.”
The OECD, which includes the US, is a forum of 38 mostly rich countries that works to set common standards on economic policy, including taxation. Based in Paris, the OECD generally believes that the current system gives multinational companies—those that can easily move their operations and assets across borders—an unfair advantage over domestic firms. More importantly, the OECD believes that when taxpayers see MNCs avoiding paying taxes, even if this is done legally, it undermines any voluntary compliance.
(You can learn more about the OECD here.)
Pillars one and two
For years, these challenges have been broken down into two sets of talking points or pillars. You’ve probably heard them referred to as Pillars One and Two.
The first pillar focuses on where tax should be paid. You can think of it in relational terms, similar to the kinds of discussions we have in the US between states. The key question is: Who has the right to tax the income even if there is no physical presence?
The second pillar looks at the amount of tax to be paid, taking into account unequal tax rates between countries. The aim was to establish a global minimum corporate tax rate of 15%.
As of last year, more than 140 countries had, in theory, agreed to the pillars. By 2025, this included the US
The current deal mainly affects Pillar Two and includes exemptions tailored to the U.S. Not everyone is a fan of these changes.
“This deal risks nearly a decade of global progress on corporate taxation just to allow the biggest, most profitable American companies to keep their profits in tax havens,” said Zorka Milin, policy director at the FACT Coalition. “The Trump administration has chosen to prioritize keeping corporate taxes low at the expense of ordinary Americans and our allies around the world.”
Milin said that while U.S. multinationals remain among the most competitive and innovative in the world, that success doesn’t always translate into fair tax contributions.
“Large U.S. multinationals have always been among the most competitive, innovative and successful in the world. What they haven’t always done, however, is pay their fair share of taxes,” he said. “While the US government has defended this deal as a victory for ‘fiscal sovereignty,’ it actually does nothing for US public revenues. The best way to protect American companies from ‘offshore taxation’ is not to demand special treatment, but to ensure that these companies pay their fair share at home.”
What the deal changes – and what it doesn’t
Milin and Thomas Georges, policy officer for the FACT Coalition, said the revised agreement retains the basic structure of the global minimum tax but weakens some of its enforcement mechanisms. However, they argue that the central achievement of the global minimum tax remains intact.
Specifically, they note that “the original promise and achievement of the global minimum tax remains in place and key parts of it will continue to apply to US companies, despite this new agreement”.
More than 60 countries have now adopted domestic minimum taxes, meaning that companies operating in those jurisdictions must pay a minimum level of tax regardless of where they report profits. According to the coalition, this widespread adoption is the most significant success of the OECD’s second pillar effort and is not affected by the new side-by-side agreement.
What has changed, they said, is how countries can react when profits are not adequately taxed anywhere. Under the revised agreement, U.S. companies would be insulated from two international “backstop” rules — the Income Inclusion Rule and the Undertaxed Profits Rule — that allow other countries to impose additional taxes when both the local jurisdiction and the company’s home country do not.
While the overall impact on revenue remains uncertain, Milin and Georges said the exemption could be costly. In the Netherlands alone, the government has estimated that the change could reduce tax revenue by around €120 million (US$141 million) a year.
Will it limit profit shifting?
Whether the global minimum tax will effectively reduce profit shifting remains an open question. Profit shifting occurs when companies move profits from country to country to take advantage of lower tax rates when there is no effective equalization mechanism, notably home buying. Milin and Georges expect the issue to be addressed during an official OECD census scheduled for 2029.
“It remains to be seen whether the second pillar will be effective in significantly reducing profit shifting,” they said. “But there is no doubt that a global minimum tax, even a reduced one, is still more effective than no tax at all.”
Critics argue that exempting US companies undermines the idea of a truly global minimum tax. Milin and Georges acknowledged that excluding a major economy like the US weakens the framework’s legitimacy, but noted that similar principles already exist in US law.
“While exempting a large economy like the US weakens the effectiveness and legitimacy of the global minimum tax, we must not forget that the basic principle behind it also exists in US rules,” Milin said, pointing to US tax reforms enacted in 2017 that require companies to pay a minimum level of tax on foreign income.
Under the agreement, US rules such as Global Intangible Low Taxed Income – previously referred to as GILTI and now given the less exciting name Net Income from CFC Test – are treated as a functional substitute for Pillar Two of the OECD framework, despite significant differences between the two systems. As a result, Milin and Georges said, other countries will no longer be able to impose additional taxes on US companies when those US rules fall short of global standards. However, they stressed that nothing in the deal prevents the US from strengthening its own corporate tax laws.
In some respects, the deal may actually limit the ability of future US administrations to further weaken corporate taxation. To qualify for the exemption, the US must maintain a corporate tax rate of at least 20% and strictly tax the foreign and domestic profits of its large corporations, they explained. And, any further weakening of GILTI or the Corporate Alternative Minimum Tax (CAMT) would jeopardize the exemptions for US companies.
What comes next?
Despite its shortcomings, Milin and Georges said the deal is preferable to abandoning the global minimum tax altogether or triggering trade retaliation, saying, “This deal is unfortunate, but it is still preferable to either abandoning the global minimum tax altogether or the punitive tax and trade actions threatened by members of Congress and the Trump administration.
Substantial improvements will ultimately depend on changes in US tax law, not additional international negotiations. “The U.S. should end all tax incentives for outsourcing,” they said, calling for corporate foreign income to be taxed at the same rate as domestic income and for the elimination of unnecessary exemptions and incentives such as foreign oil and gas extraction income (FOGEI) and foreign-source eligible income (FDDEI).
Those countries that have agreed to the deal still have to pass laws to implement it – how long that could affect the tax bills of US companies. “There is a real possibility that some US multinationals will still face additional taxes in the short term,” Milin said, “regardless of the new side-by-side system.”
