US multinationals gain carve-out from global tax pact

US-based multinational corporations are set to be exempt from key elements of the global minimum tax regime, following an agreement among major economies that eases pressure on Washington while preserving the broader framework championed by the Organisation for Economic Co-operation and Development. The move reshapes the implementation of the 15 per cent global minimum tax and recalibrates how countries apply enforcement rules to the world’s largest companies.

The exemption centres on how the United States will be treated under the so-called Pillar Two rules, which were designed to prevent profit shifting by ensuring that multinationals pay a minimum level of tax wherever they operate. Under the revised approach, companies headquartered in the United States will not be subject to certain “backstop” taxes imposed by other jurisdictions, provided Washington maintains its existing international tax regime and cooperates on transparency and reporting.

Finance officials involved in the talks have described the outcome as a pragmatic compromise. It allows the global deal to move forward in Europe, Asia and parts of the Middle East, while acknowledging political and legislative constraints in the United States, where Congress has not adopted the OECD’s minimum tax rules. Instead, US firms remain governed by domestic measures such as the global intangible low-taxed income system, which officials argue already targets offshore profit shifting, albeit in a different way.

The agreement reflects months of negotiations among G7 and G20 members after it became clear that unilateral enforcement against US groups risked triggering retaliatory measures. Washington had warned that applying the undertaxed profits rule to American companies could lead to counter-taxes on foreign firms operating in the United States, raising the prospect of a transatlantic tax dispute. The revised framework seeks to defuse that risk while maintaining pressure on non-US multinationals to comply with the 15 per cent floor.

For European governments, which have already legislated for Pillar Two, the carve-out is politically sensitive. Officials have argued that the credibility of the global tax deal depends on broad participation, including by the world’s largest economy. At the same time, they have stressed that the exemption is not an abandonment of the minimum tax but an interim solution that keeps US firms within a comparable tax environment.

Corporate tax specialists say the impact will be uneven across sectors. Large technology, pharmaceutical and consumer goods groups headquartered in the United States are expected to benefit most, as they had faced the prospect of additional top-up taxes in countries where they book significant profits. By contrast, multinationals based in Europe and Asia will remain fully subject to the new rules, potentially altering competitive dynamics in certain industries.

Emerging economies have reacted cautiously. Many had supported the global minimum tax as a way to protect their tax bases and reduce incentives for profit shifting to low-tax jurisdictions. Some officials have expressed concern that exempting US firms could weaken the deal’s perceived fairness. Others note that the agreement still delivers additional revenue by constraining tax competition among investment hubs and by increasing transparency requirements.

The OECD has emphasised that the framework continues to evolve through administrative guidance rather than treaty changes, allowing countries to adapt implementation without reopening the entire agreement. Technical work is continuing on how domestic tax systems, including those of the United States, can be assessed as functionally equivalent to the minimum tax standard, a process that will shape future enforcement decisions.

Markets have largely viewed the development as reducing uncertainty for US multinationals, many of which had flagged the global minimum tax as a potential earnings risk. Legal and accounting firms report increased demand for advice as companies reassess their effective tax rates and compliance obligations across jurisdictions.