G7 Countries Pushing for Loophole Favoring US Corporations in Global Minimum Tax
G7 Nations Exempt American Businesses from Universal Corporate Tax Rate Agreement - G7 nations establish a global tax exemption threshold for American businesses
The world of international corporate taxation is buzzing with activity, courtesy of the Organisation for Economic Co-operation and Development (OECD). After a consensus of around 140 countries on reforming the system in 2021, talks are underway to tax revenues generated in the countries where companies operate and impose a global minimum tax of 15% for large corporations.
The goal? An end to the relentless tax competition and preventing large corporations from skirting taxation. However, in 2021, then US President, Donald Trump, shot down this agreement. Fast-forward to 2025, and Scott Bessent, the US Treasury Secretary, is making a splash with a proposal. On a Thursday press conference, he announced that G7 nations intend to seal a "joint agreement safeguarding American interests."
In response, Bessent is urging the US Congress to eliminate the "retaliatory tax" from Trump's budget bill. This tax, controversial within the US, could see additional taxes imposed on companies and investors from countries with allegedly "unfair" taxation on US corporations. In exchange, the G7 presidency explains, the agreement stems from "recently proposed changes" in the US tax system.
Trump's budget bill has already been approved by the House of Representatives and is now with the Senate. The "retaliatory tax" has stirred controversy, as it could discourage foreign companies from investing in the US.
Lars Klingbeil, Germany's Federal Minister of Finance, welcomed the G7 agreement. "Working with our partners, we have ensured that the US will not thwart global minimum taxation," he announced. With proposed penalties for foreign investors now off the table, Klingbeil claims, "OECD and US minimum taxes can coexist harmoniously."
To put this agreement into action, the OECD needs to adjust its rules for global minimum taxation.
Behind the Scenes
The exception for US corporations in the global minimum tax is a contentious move among the G7 nations. The US Treasury Secretary hints at a deal that would exempt American companies from the proposed global minimum tax on multinational corporations. This carve-out would circumvent other countries' ability to impose top-up taxes on multinationals originating in the US. This would create a skewed global tax landscape, causing international tax rules to unfairly favor US multinationals[1].
The US has justified this exception by claiming its broadly equivalent domestic tax policies, such as the 15% Global Intangible Low-Taxed Income (GILTI) tax. Negotiations between the OECD and the US are ongoing, aiming to acknowledge GILTI as in line with the global minimum tax framework. This moves to avoid tariff retaliation and trade conflicts with countries like Canada[2].
The OECD's Pillar Two framework requires multinational enterprises (MNEs) with global revenues above EUR 750 million to pay a minimum effective tax rate of 15% on their income in each jurisdiction. Implementation is progressing amongst most OECD countries, but the US position may result in a significant carve-out for American multinationals[3].
There is political resistance within the US to the OECD global tax deal, with fears it could harm American companies, provide competitive advantages to countries like China, and result in substantial tax revenue losses for the US government. Legislation such as the Unfair Tax Prevention Act is being proposed to counter perceived unfairness in the OECD Pillar Two rules that may disproportionately tax US companies in foreign jurisdictions[4].
The Bottom Line
Negotiations for a global minimum tax are ongoing, but the significant exception for US corporations creates a fragmented global tax system. If the OECD recognizes the US tax system as compatible, it could entrench an uneven tax treatment worldwide[1][2][3][4].
The Commission, in light of the ongoing negotiations for a global minimum tax, could take initiatives to address the financing of businesses and politics, as well as general news, by emphasizing the importance of a fair and equitable global tax system that does not favor any particular country or corporation, thus preventing the skewing of information and communication services provided by Member States.
Moreover, given the resistance within the US to the OECD global tax deal and the potential disparity it may create, it would be prudent for the Commission to engage in dialogue with US policymakers to ensure a cooperative and balanced approach to international corporate taxation, ultimately benefiting the quality and integrity of information and communication services across the globe.
