Key Takeaways
- While a high-level agreement between the U.S. and other nations over the 15% global minimum tax was announced this summer, there are few other details.
- Behind-the-scenes, officials are working to find a way to exempt U.S. companies while still following the goals of the project.
- Treating nonrefundable tax credits differently is one way to bridge the gap.
- The Trump administration has said it will seek to bring back retaliatory provision dropped from the OBBBA if the deal falls apart.
- The agreement was praised for protecting national sovereignty.
Since the announcement earlier this year of an agreement between the U.S. and the Organization for Economic Cooperation and Development on the Pillar Two 15% global minimum tax, the parties have been quietly working on sketching out the details of that high-level handshake deal.
In the initial announcement, both sides claimed that they would create a “side-by-side” system that would avoid applying Pillar Two taxes on U.S.-based companies—even when they would otherwise be taxed by the under-taxed profits rule, which kicks in when a multinational entity has an effective tax rate of 15% or less in a single jurisdiction.
According to Tax Notes, one plan under discussion would create an exemption applying to taxpayers from countries with existing systems that are considered “robust” enough. In this sense, the new exemption wouldn’t apply to the U.S. explicitly—even though it’s likely it would apply to no one else—but would rather be based on supposedly objective criteria.
Ironically, this is pretty similar to what the U.S. had requested from the beginning: to be “grandfathered” into the Pillar Two system, as the only country which had its own foreign minimum tax regime prior to the 2021 Pillar Two system.
Already, some countries are bristling at the idea of an exemption (likely through a safe harbor) that, explicitly or in practice, applies only to the U.S. But the U.S. would note that it was the first country to adapt a global minimum tax, the global intangible low-taxed income regime. (After changes made by the One Big Beautiful Bill Act, it is now the tax on net CFC tested income.) That system now applies a 14% effective tax rate on offshore income, and in some ways is even harsher on taxpayers than the OECD’s Pillar Two.
Another way to bridge the divide between other nations and the U.S. would be to treat non-refundable tax credits in a more taxpayer-favorable way, which OECD officials are reportedly considering. One proposal would consider expenditure-based incentives—like the U.S. credit for research and development—as similar to refundable tax credits, which are calculated in a way that reduces a company’s effective tax rate less significantly. Under the current system, nonrefundable tax credits are treated as a tax benefit, while refundable credits are seen more like a direct subsidy. The U.S. has argued that credits tied to expenditures aren’t used in the kind of base-eroding activities which were the original concern of the project.
In practice, R&D credits were likely one of the biggest reasons that a U.S. company would find itself targeted by the Pillar Two tax regime. But it’s not the only reason. And there are still some cases where a large R&D credit could trigger Pillar Two.
Whether this agreement holds will likely hinge on how much other countries are willing to look beyond those side cases, in favor of a broad exemption to keep the coalition together.
Noteworthy Items This Week
While drafting their reconciliation package — the One Big Beautiful Bill Act (P.L. 119-21) — earlier this year, Republicans initially included the new section 899, which would have imposed major tax penalties on individuals and businesses based in foreign countries that were deemed by the United States to subject U.S. companies to discriminatory taxes.
Trump Warns of Doom if Tariffs Are Ruled Illegal. Others See a Tax Cut. – Andrew Duehren, The New York Times:
To some economists and analysts, a court ruling throwing out many of Mr. Trump’s tariffs could instead resemble something like a corporate tax cut, traditionally a desirable policy outcome among Republicans. That is because many American companies have had to shoulder at least some of the costs caused by the taxes on imported goods, thinning profit margins and reducing spending on other business expenses.
A legal ruling ending many of Mr. Trump’s current tariffs would not only free firms from that tax burden but also potentially remit tens of billions of dollars in tariff revenue back to them.
Lawmakers Push Treasury to Rescind Corporate AMT Guidance – Cady Stanton, Tax Notes ($):
“We urge the IRS to rescind Notice 2025-27 and Notice 2025-28 and finalize” the Biden administration’s proposed corporate AMT regulation, the lawmakers wrote. They asserted that the notices weaken the corporate AMT “under the cover of bureaucratic rulemaking and give the largest and wealthiest corporations yet another get-out-of-paying-taxes-free card."
EU Parliament Approves Carbon Border Tax Simplifications – Saim Saeed, Bloomberg Tax ($):
CBAM, which will enter into force next year, charges a fee on carbon-intensive imports into the EU from countries that may have looser climate rules than the bloc.
Public Domain Superhero of the Week
Every week, a new character from the Golden Age of Comics, who’s fallen out of use.
This week’s entry: Black Angel
/arrow/blackangel/black_angel2.jpg){kind=icon}
Debut Year: 1942
Debut Publication: Air Fighter Comics #2
Origin Story: An English socialite by day, at night she battles Nazis as the mysterious Black Angel.
Superpowers: No superpowers, but she uses an aircraft hidden in her castle's secret underground hangar, as well as poison darts.
Eide Bailly's International Tax Team and our affiliates at HLB, The Global Advisory and Accounting Network, stand ready to assist with your worldwide tax needs.
We're Here to Help
