In recent years, countries have debated significant changes to international taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. rules affecting multinational companies. In October 2021, after negotiations at the Organisation for Economic Co-Operation and Development (OECD), more than 130 member jurisdictions agreed to an outline for new tax rules. However, in the years since that initial agreement, much has changed.
The OECD proposal follows an outline that has been discussed since 2019. There are two “pillars” of the reform: Pillar One, if implemented, would move more taxation rights to the countries where customers reside, impacting roughly $200 billion in profits; Pillar Two introduces a global minimum tax of 15 percent, increasing taxes on companies with earnings in low-tax jurisdictions and potentially increasing tax revenues by an estimated $220 billion globally.
A draft of the multilateral treaty for Pillar One was published in October 2023, and a deadline of June 2024 for a final agreement has come and gone. The agreement between the US and several nations with discriminatory digital services taxes has also lapsed. Canada, which was not part of that agreement, planned to implement its own digital services tax, but changed course in June 2025. However, the window of opportunity for Pillar One to resolve disputes over digital services taxes seems to have lapsed.
Pillar Two implementation, on the other hand, began in 2024 for the earliest adopters.
Pillar One Would Change International Taxation Rights
Pillar One would contain “Amount A,” which would apply to companies with more than €20 billion in revenues and a profit margin above 10 percent. For those companies, a portion of their profits would be taxed in jurisdictions where they have sales; 25 percent of profits above a 10 percent margin may be taxed. After a review period of seven years, the €20 billion threshold may fall to €10 billion.
Amount A is a limited redistribution of tax revenue from countries where large multinationals operate to countries where they have customers. US companies constitute a large share of these companies.
The Joint Committee on Taxation in the US Congress has estimated that the US would likely lose some tax revenue ($1.4 billion in a single year) due to Amount A. It has also projected that approximately 70 percent of the potential profits to be reallocated under Amount A would be generated by US domestic multinationals.
Pillar One would also contain “Amount B,” which would provide a simpler method for companies to calculate the taxes on foreign operations, such as marketing and distribution. In December 2024, the OECD released guidance on using the Amount B framework starting in January 2025.
Pillar Two Implements a Global Minimum Tax
Pillar Two is the global minimum tax. It includes three main rules and a fourth for tax treaties. These rules are meant to apply to companies with more than €750 million in revenues. Model rules were released in December 2021.
The first is a domestic minimum tax, which countries could use to claim the first right to tax profits currently being taxed below the minimum effective rate of 15 percent.
The second is an income inclusion rule, which determines when the foreign income of a company should be included in the taxable income of the parent company. The agreement places the minimum effective tax rate at 15 percent; otherwise, additional taxes would be owed in a company’s home jurisdiction.
The income inclusion rule would apply to foreign profits after a deduction of 8 percent of the value of tangible assets (like equipment and facilities) and 10 percent of payroll costs. Those deductions would be reduced to 5 percent each over a 10-year transition period.
Importantly, Pillar Two rules rely primarily on financial (i.e., “book”) accounting data rather than tax accounting data. These book/tax differences mean that the Pillar Two rules account for timing differences by focusing on deferred tax assets, which can include net operating losses and capital allowances. However, those deferred tax assets must be valued at the 15 percent minimum tax rate.
Like other rules that tax foreign earnings, the income inclusion rule will increase the tax costs of cross-border investment and impact business decisions regarding where to hire and invest around the world—including in domestic operations.
The third rule in Pillar Two is the undertaxed profits rule, which would allow a country to increase taxes on a company if another related entity in a different jurisdiction is being taxed below the 15 percent effective rate. If multiple countries are applying a similar top-up tax, the taxable profit is divided based on the location of tangible assets and employees.
Together, the domestic minimum tax, income inclusion rule, and undertaxed profits rule create a minimum tax both on companies investing abroad and foreign companies investing domestically. They are all tied to the minimum effective rate of at least 15 percent and would apply to each jurisdiction in which a company operates.
The fourth Pillar Two rule is the “subject to tax rule,” meant to be used in a tax treaty framework to give countries the ability to tax payments that might otherwise only face a low rate of tax. The tax rate for this rule would be set at 9 percent.
The outlined version of Pillar Two is a template that countries can use to design their rules. If enough countries adopt the rules, then a significant share of corporate profits across the globe would face a 15 percent effective tax rate.
The 27 European Union Member States are in the process of implementing the Pillar Two rules in line with a unanimously agreed upon directive. Companies with an annual turnover of at least €750 million began paying the 15 percent minimum rate starting in 2024, including wholly domestic groups that met the revenue threshold.
Member States with more than 12 in-scope multinational groups must implement the income inclusion rule from 31 December 2023, and the undertaxed profits rule from 31 December 2024. Those Member States with fewer than 12 can elect to defer implementing both rules for six years. According to reports, these include Estonia, Latvia, Lithuania, Malta, and the Slovak Republic.
The Current State of Pillar Two
As of 6 August 2025, 65 countries have either introduced draft legislation or adopted final legislation transposing Pillar Two’s model rules into their national laws.
President Trump has threatened to retaliate against other countries that impose the global minimum tax on US companies and has revived trade threats against foreign digital services taxes. In a memorandum published on 20 January 2025, the president directed the US Treasury Secretary to publish findings and recommendations for options to protect from discriminatory and extraterritorial measures within 60 days. The president also included digital services taxes in his “Fair and Reciprocal Plan” for US trade relations.
The US Congress has chosen not to implement changes in line with the global tax deal. In the summer of 2025, Republicans in Congress advanced legislation that included a proposal to retaliate against other countries with undertaxed profits rules and digital services taxes. That provision was dropped from the final version of the One Big Beautiful Bill Act (OBBBA) due to an agreement at the G7.
That agreement envisions a side-by-side approach where US anti-avoidance rules are respected by other countries and US-parented companies are kept out of scope for foreign income inclusion rules and undertaxed profits rules. However, for the agreement to be enforceable, it needs to be translated into guidance from the OECD and into changes to national laws in countries that have adopted the global minimum tax rules. The OBBBA also modified the US system for taxing international income to be more similar to—but certainly not identical with—an income inclusion rule.
Other governments are also reviewing Pillar Two. Germany and the Netherlands released a joint informal statement in December 2024 saying that the minimum tax should be the starting point of an effort to “declutter” international tax rules. While the statement does not endorse a repeal of the rules, it notes there is “broad potential for simplification.”
The global minimum tax rules have significant drawbacks, especially in how they change incentives for governments that want to provide fiscal incentives for investment. The rules clearly favor government subsidies to businesses to offset some of the increased costs from the minimum tax. This is because standard tax credits are at a disadvantage relative to government grants and refundable credits.
Undoubtedly, this is a significant shift in corporate tax complexity, both for governments tasked with legislating and enforcing the new rules, and for taxpayers facing increased compliance burdens.
The agreement represents a major change for tax competition as well, and many countries will rethink their tax policies for multinationals. However, the US will continue to chart its own course, and other countries may prefer to do the same, depending on the final outcome of the G7 statement.
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