Has the global minimum tax survived Trump?

US objections have not killed off the 15 percent global minimum tax, but they have altered it and given the US a competitive advantage.

One of Donald Trump’s first acts in his second term as United States President was to issue a 20 January 2025 executive order rejecting application in the US of a global tax deal brokered in 2021 by the Organisation for Economic Co-operation and Development. The deal’s so-called Pillar 2, which established a global minimum tax of 15 percent on corporate profits, had “no force or effect in the United States,” according to the order.

A year later, Trump seems to have got his way. The 147 jurisdictions that agreed the global deal with the OECD/G20 Inclusive Framework (IF) have agreed on a tax package establishing a “side-by-side” mechanism that grants special treatment to the US.

Trump’s Treasury Secretary Scott Bessent called the updated agreement a “historic victory preserving US tax sovereignty”. However, the agreement does not amount to a full dismantling of Pillar 2. It preserves the minimum tax architecture. Differentiated treatment for the US is regrettable but the US has its own minimum tax, which, with a 14 percent rate, is only slightly below the global rate but which applies a much narrower base. Reality is therefore more nuanced than US victory claims, which may explain why all IF members, even China, India and developing countries more broadly have signed the new agreement, despite reservations about an asymmetrical deal twisted in favour of the US.

International tax coordination has thus proved at least somewhat resilient at a time when multilateral agreements have become increasingly rare. This is important as the implementation of the global minimum tax requires a multilateral infrastructure, comprising common forms, in-depth information exchange and peer review mechanisms.

In addition to the side-by-side system for US companies, the updated deal brings new rules on the treatment of tax benefits and various simplifications. While simplification is welcome for an unprecedently complex regime, the implications of the first two elements require closer examination.

Box 1: How the global minimum tax works

The global minimum tax (Pillar 2) is intended to ensure that large multinational enterprises (MNEs) pay an effective tax rate of at least 15 percent wherever they operate. If profits are taxed below that threshold in a given country, a top-up tax can be applied, either by the multinational’s home jurisdiction (known as the Income Inclusion Rule, IIR), or, if the home country does not act, by other jurisdictions where the group operates (known as the Undertaxed Profits Rule, UTPR). To ensure first place in the queue, jurisdictions where profits are earned may also implement a top-up tax (the Qualified Domestic Minimum Top-Up Tax, QDMTT).

So far, more than 55 jurisdictions including the European Union have implemented Pillar 2. The US objection is that application of the UTPR to US headquartered groups would be extraterritorial, even if the profits of US MNEs are undertaxed abroad.

The side-by-side system provides US companies a competitive advantage

The side-by-side system shelters US companies from the UTPR but subjects them to the US minimum tax, formerly known as GILTI (Global Intangible Low Tax Income) and now as NCTI (Net CFC Tested Income), which was brought to 14 percent by Trump’s July 2025 One Big Beautiful Bill Act. However, the divergence from the global minimum tax goes beyond the 1 percent rate difference. NCTI captures foreign profits of US companies only when they are below 14 percent as a worldwide average, and not on a country-by-country basis, as is the case with Pillar 2. Therefore, US multinationals that blend profits earned in low-tax jurisdictions with profits earned in high-tax jurisdictions may avoid triggering the US minimum tax – and will be sheltered from Pillar 2.

However, US companies are not fully exempt from Pillar 2. Domestic minimum top-up taxes (the QDMTT) will apply first. The profits of US companies in low-tax countries that implement a QDMTT will therefore be subject to the 15 percent minimum tax. To date, 46 jurisdictions have implemented a QDMTT, including most low and no-tax jurisdictions.

In addition, mechanisms are embedded in the new agreement to encourage countries to adopt QDMTTs, thus ensuring them first place in the queue to apply the tax. This contradicts US Treasury claims (footnote 4) and may not please the US Congress, as estimates done for NCTI did not factor in such broad adoption of QDMTTs, or that they would apply first.

From this perspective, the new agreement consolidates the central role of QDMTTs and reinforces their integrity. Meanwhile, without the deal, the minimum tax could have unravelled following US withdrawal. Instead, it has been preserved, though in an explicitly asymmetric form.

The trouble with tax benefits

The new side-by-side agreement also modifies Pillar 2 on tax benefits. Pillar 2 was designed to put a 15 percent floor on tax competition and under the original Pillar 2 rules, tax breaks were considered to reduce covered taxes for the purpose of computing the effective tax rate. The only exception was refundable tax credits, which were considered to increase taxable income but not reduce the effective tax rate.

Abandoning this strong rationale, the new agreement introduces a category of ‘substance-based tax incentives’ that may be granted without reducing the effective tax rate for Pillar 2 purposes. These incentives are limited to activities linked to real economic substance and are capped at either 5.5 percent of payroll or depreciation, or 1 percent of net tangible assets.

Regrettably, no comprehensive impact assessment of the impact of this has been done and it is difficult to determine how much tax competition this adjustment may reintroduce into the system. What is clear is that it modifies the original intention of Pillar 2. It will also largely benefit the US, which traditionally uses non-refundable tax credits, unlike European countries, which apply subsidies and refundable tax credits. This new regime has been designed largely to shield the undertaxed profits of US subsidiaries of foreign groups from being picked up under the IIR (Box 1) in home jurisdictions. For example, a US subsidiary of a German multinational benefitting from generous US R&D tax credits could fall below the 15 percent threshold without triggering a top-up tax in Germany.

Beyond developed economies, the implications of this for developing countries are significant. Pillar 2 was intended, in part, to protect these jurisdictions from inefficient tax incentives by allowing them to reclaim revenue through a domestic top-up tax. Many lack the fiscal capacity to grant refundable tax credits and may now face renewed pressure to offer non-refundable incentives. This adjustment risks re-unleashing dynamics that the minimum tax sought to contain.

Impact on Europe

To resist US pressure on the side-by-side deal, the European Union could have argued that it could not gather unanimity (a requirement for EU tax rules) to change the EU directive that implements Pillar 2 (Directive (EU) 2022/2523). The EU directive states explicitly that the US system is not compatible with the agreed international rules. As sufficiently large markets, EU countries should be in a position to apply the UTPR to the undertaxed profits of US companies operating within its territory. 

Instead, in discussions on the new agreement, fear of US retaliation prevailed. The US Congress included a retaliatory measure, known as section 899, in the draft One Big Beautiful Bill. Countries implementing the UTPR against US companies would have been severely sanctioned with massive withholding taxes on US-sourced income. The threat was suspended only when France and Germany in June 2025 fell in line with US requests, opening the way to the side-by-side system.

The new agreement results in an arrangement framed as a “safe harbour,” allowing the European Commission to argue that no formal amendment of the directive is required, as the EU minimum tax directive (Article 32) refers to OECD-agreed safe harbours.

The agreement allows the US to enhance its competitive position, with potential implications for aggressive tax planning and the attraction of foreign investment. These risks would be more acute if the US were to evolve towards an even lower tax model. While this is not currently the case, as the federal corporate tax rate remains at 21 percent, any expansion of the use of tax incentives, or any shift away from direct taxation toward greater reliance on tariffs, should be monitored.

Nevertheless, Europe and its partners can claim to have preserved the global minimum tax framework, albeit under constrained circumstances. Whether this accommodation proves temporary or becomes a lasting feature of the system will depend on future political and fiscal developments.

Finally, the agreement opens the door for the US to re-engage in the discussion of the taxation of the digital economy. Scott Bessent has concluded his statement on the side-by-side deal by saying the US will “move toward a constructive dialogue on the taxation of the digital economy” (footnote 4).

Taxation of the digital economy was the subject of Pillar 1 of the 2012 global tax deal. President Trump’s 20 January 2025 executive order also suspended US participation in the negotiations on a multilateral convention to implement Pillar 1. The multilateral convention would have provided a solution enabling market countries to take a share of the profits of the largest multinational companies, including digital platforms.

Does the more conciliatory US language mean Pillar 1 is back on track? It is doubtful the US will ever agree a multilateral solution on digital tax, which would give jurisdictions taxing rights over some of the profits of the most successful US companies. It is equally doubtful that the US will not push back against any jurisdictions that continue to apply unilateral measures. However, the US will continue to bundle its concerns on unilateral tax measures together with those on EU-wide non-tax digital economy regulation. It will be extremely interesting to watch, in the coming months, how the revival of the discussion on Pillar 1, especially between the US and Europe, unfolds.

Source : Bruegel