Global Minimum Tax

In January 2025, President Donald Trump signed an executive order withdrawing the United States from the OECD/G20 global minimum tax framework. This agreement, supported by over 135 countries, was designed to establish a 15 percent global minimum corporate tax rate, aimed at curbing profit shifting and leveling the international tax playing field.

The U.S. withdrawal introduces serious implications for global tax coordination, corporate tax planning, and compliance across borders. This blog post outlines what has changed, how it may impact multinational entities, and what steps tax professionals should consider moving forward.

Background and Context

The global minimum tax was part of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS 2.0). Specifically:

• Pillar One focused on reallocating taxing rights for large multinational companies, particularly those in the digital economy.
• Pillar Two introduced the Global Anti-Base Erosion (GloBE) rules—requiring participating jurisdictions to enforce a 15 percent minimum effective tax rate for multinational entities with annual revenues of over 750 million.

Under the Biden administration, the U.S. began implementing Pillar Two through domestic legislation in the 2022 Inflation Reduction Act. However, this momentum was halted by President Trump’s 2025 executive order, signaling a return to a more unilateral approach to international tax policy.

What Has Changed or Been Clarified

Following the U.S. exit from the OECD agreement, the following developments are in effect:

• No U.S. enforcement of GloBE minimum tax rules
  The U.S. government will not impose a domestic minimum tax in accordance with the 15 percent global rate.
• Foreign “top-up taxes” may still apply
  Jurisdictions that have implemented Pillar Two can collect additional taxes on profits earned by U.S. multinationals if the effective tax rate in a jurisdiction is below the 15 percent threshold.
• Renewed risk of digital services taxes (DSTs)
  France, the United Kingdom, and others may reinstate Digital Service Taxes (DSTs) targeting large U.S.-based tech platforms. These measures were previously paused during OECD negotiations.
• Trade retaliation possible
  The U.S. Trade Representative may respond to DSTs with tariffs or regulatory actions under Section 301 of the Trade Act.
• Decline in multilateral coordination
  The OECD framework now faces fragmentation, with countries likely pursuing divergent and unilateral tax rules.

Real-World Impact

For Multinational Corporations

• Strategic and structural realignments
  U.S.-based companies may continue operating in low-tax jurisdictions without facing U.S. minimum tax penalties but risk foreign top-up taxes under GloBE.
• Dual compliance burdens
  Corporations must comply with traditional U.S. tax rules while also adhering to foreign minimum tax reporting standards. This increases complexity, particularly for tax departments managing entities across dozens of countries.
• Greater audit exposure
  Differing rules across jurisdictions raise the likelihood of audit disputes and inconsistent treatment of global income, particularly related to intercompany transactions.

For Foreign Governments

• Policy recalibration
  Countries in the EU, UK, and beyond are expected to enforce Pillar Two rules and may explore new tax measures targeting digital and intangible assets.
• Strained U.S. relations
  Diplomatic tensions may rise as countries assess how to enforce top-up taxes on U.S. firms without sparking trade retaliation.

Compliance and Reporting

Even in the absence of U.S. participation, multinational entities should prepare for:

GloBE filings abroad
Countries that have enacted Pillar Two will require jurisdiction-by-jurisdiction effective tax rate disclosures.

• Domestic and international tax form requirements
  Relevant forms may include:
  • Form 1120 – U.S. corporate tax return
  • Form 5471 / Form 8858 – Foreign entity information
  • GloBE Information Return – Required by participating jurisdictions
• Transfer pricing documentation
  Increased enforcement will require updated and defensible intercompany pricing and economic substance documentation.

Considerations and Caveats

• Future legislative shifts
  A new Congress or administration could revisit the U.S. position. Stakeholders should monitor for legal challenges or proposed alternative tax frameworks.
• State-level developments
  Some U.S. states may introduce their own minimum tax rules, creating additional compliance burdens and patchwork regulations.
• Jurisdictional inconsistencies
  Without uniform adoption, MNEs face the risk of double taxation and regulatory uncertainty.

Conclusion

The U.S. withdrawal from the OECD global minimum tax agreement represents a major disruption to international tax cooperation. While American corporations may benefit from short-term relief under U.S. tax law, they now face heightened scrutiny and potential taxation from foreign jurisdictions enforcing their own rules.

Tax professionals, corporate counsel, and financial officers must respond proactively:

• Review global effective tax rates and identify jurisdictions at risk for top-up taxes.
• Strengthen internal systems to manage parallel tax regimes.
• Reassess the company’s exposure to DSTs, especially in Europe and Asia.
• Stay informed on legislative developments and seek strategic guidance from international tax advisors.

The experienced International Tax attorneys at RJS Law are well versed in current global tax regulations and can help you understand changing tax laws and structures to accomplish your long-term goals. For a no cost consultation, please visit us on the web at RJS LAW or call 619-595-1655.

This blog reflects our opinions and is intended for informational purposes. It is not legal advice and does not create an attorney-client relationship. Proposed legislation, executive orders, and existing state and federal laws vary and may change, so do not rely on this content as a substitute for professional legal counsel. We make no guarantees about accuracy, and any use of this information is at your own risk.