As the new year rolled into 2026, the OECD and the US were busy finalising an agreement to amend the rules governing the 15% minimum corporate tax rate that was announced half a decade ago. The ‘side-by-side’ deal, agreed upon by more than 145 countries on 5 January, includes carve outs for US multinationals—exemptions from parts of the minimum tax framework— and some simplifications of the rules.
The OECD’s global tax agreement was described by Larry Summers as the “most significant international economic pact of the 21st century so far”. It was created to prevent corporate profit shifting, multinational tax avoidance and to address the growth of intangible assets from the digital economy.
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The carve outs for US companies have caused much debate. Partly, because the agreement arguably leaves the global tax system more uneven and shrouded in uncertainty but also because of the aggressive tactics used by the US administration to finalise the changes.
Tax Foundation president and CEO Daniel Bunn says it is important to remember that the agreement has more to do with long-standing concerns shared by bipartisan lawmakers than politicking by US President Donald Trump’s administration.
“This is not a rabbit Trump pulled out of a hat. This has been ten years in the making with various wrinkles eventually getting smoothed out,” Bunn says.
The side-by-side agreement concerns the second of the two tax framework pillars, which introduces a corporate global minimum tax of 15% for companies with more than €750m ($864m) in revenue. The biggest point of contention is with pillar two. The Under Taxed Profits Rule (UTPR) allows a country to tax a company more than it would normally owe if the same business or its subsidiary in a different jurisdiction is being taxed below the 15% minimum.
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By GlobalDataThe side-by-side agreement exempts US multinationals from the UTPR, and smooths out concerns over how research and development (R&D) tax credits and incentives are accounted for.
Critics argue that the exemption creates a more uneven global tax landscape, where US multinationals (which make up a lot of the eligible businesses) will face weaker regulations than their counterparts in compliant jurisdictions. Large businesses in the EU, for example, are likely to face a competitive disadvantage as compliance procedures become more complicated. The lack of implementation by major economies such as India and China risks further exacerbating this disadvantage.
US minimum taxes
Before the OECD initiative began being discussed in 2019, the US had already started the process of establishing minimum corporate taxes, notes Bunn. Pressure had long been building on the US Congress to address how the country’s tax regime was “out of line with the rest of the world” and the losses this was creating for the US tax base as companies reincorporated profits in alternative jurisdictions.
“Then, 2017 rolls around. Republicans had been waiting for a moment to do major tax reform, and they did do major tax reform – a lot of significant tax cuts – but on the internal side, they introduced some novel concepts,” Bunn outlines.
Before 2017, the US taxed companies and citizens on worldwide income, but companies were able to put off taxes on foreign subsidiaries’ business earnings until these were repatriated to the US as dividends. Then, the first Trump administration passed the Tax Cuts and Jobs Act (TCJA), which lowered the corporate tax rate from 35% to 21%.
The TCJA introduced multiple provisions aimed at preventing profit shifting. The Base Erosion and Anti-Abuse Tax introduces a 10% minimum tax aimed at preventing domestic and foreign operators with US operations from profit shifting to avoid taxes. The Global Intangible Low-Taxed Income is a way to calculate a multinational’s foreign earnings on intangible assets such as copyrights, patents and trademarks to ensure it pays a minimum level of tax.
OECD disagreements
As the US pushed on with its own minimum tax initiatives, interest grew from international partners. Then came the global pandemic, which strained government resources and reinforced momentum to address multinational profit shifting. In 2021, more than 130 countries agreed to a minimum tax rate of 15%.
However, as negotiations over the tax framework continued, certain sticking points between the OECD and the US dragged on.
“There were parts of those model rules that were really offensive to both the Republican and Democratic parties; primarily, the treatment of different tax credits relative to the treatment of government grants,” Bunn explains. “The model rules were harsh on some things that are baked into the US tax system and lenient on things that the US doesn’t do as much.”
At the end of the Biden administration, the US was negotiating with the OECD to address some of these issues. Particularly when it came to the way the US R&D tax credit system was treated under pillar two rules.
During the second Trump administration, however, a carrot and stick approach, which threatened foreign investors in the US with taxes based on their home country’s trade policy, drove forward an agreement. The US leveraged the threat of including this provision (Section 899) in the One Big Beautiful Act to get countries to agree to carve outs for US companies in the OECD agreement.
The threat of Section 899, even if it did not pass, was enough to affect how businesses calculated risk. “It changed boardroom behaviour, even though it didn’t become law – and that’s the point. It reminded global investors that US tax activities can shape the entire system, even when nothing passes,” EY Asia-Pacific tax policy leader Chris Miller said.
While the carve outs may have helped address certain concerns, many critics highlight that they weaken the agreement’s economic potential.
“You have more and more exceptions, and it becomes a tiger with no teeth,” Christoph Spengel, a tax professor at the University of Mannheim, tells Investment Monitor. “Maybe the economic consequences are not that severe anymore, because activities do not fall under pillar two, but you still have the compliance costs you have to file.”
EU’s bureaucratic migraine
Currently, the EU is one of the biggest economic actors implementing the OECD’s minimum corporate tax rates. Others include the UK and Australia. Crucially, however, multinationals in the US, India and China are now either exempt or have not followed through on commitments (at least yet). Experts suggest this will create an adverse effect for foreign investment in the bloc, as any profits made on capital spent in the EU will be subject to all the OECD’s rules.
Spengel notes that there is friction between the added costs multinationals will have to incur to comply with both domestic and international tax frameworks and actual revenue from the policy. Figuring out how these systems interact is “an administrative monster”, Spengel says.
A paper he published in late 2025 found that the compliance burden is set to outstrip the tax revenue.
In Germany, he notes, an analysis of the effects of the OECD’s tax suggests it will bring in €20m ($23m) of additional revenue a year, but increase annual compliance and administrative costs to €130m.
“Last week, I talked to the tax director of a German-based pharmaceutical multinational. They have a turnover of €50bn, and the expected pillar two tax payment will be €1.2m,” Spengel notes.
He also highlights that the EU already has an existing anti-tax fraud framework, namely the bloc’s Anti-Tax Avoidance Directive (ATAD), adopted in 2016. A recently published paper from the University of Mannheim concluded that the coexistence of the ATAD with the OECD minimum tax rules creates significant regulatory overlap, leading to “redundant obligations, legal uncertainty and high compliance costs”.
An uneven, unpredictable global landscape
Both multilateral organisations and domestic governments have made moves towards limiting the usage of low taxes as a tool for foreign direct investment competition, as it led to race-to-the-bottom dynamics. However, the effects of these policies are hard to measure.
While these efforts long precede the Trump administration and the side-by-side agreement, they introduce more uncertainty and put into question the role of a crucial multilateral actor. Meanwhile, this creates further questions for the EU on how to stay competitive, stick to multilateral agreements and continue to address tax avoidance by multinationals at a time when the transatlantic relationship is at its lowest ebb.
