Countries Carve Out US Business From Global Minimum Tax (3)

The Trump administration notched a major win for US companies Monday, securing a commitment from international negotiators at the OECD to exempt them from key provisions of the global minimum tax.

The tax has been vigorously opposed by multinationals, which complained that costs of complying with the complex array of rules far outstrip the levy itself. The Trump administration demanded a carve-out for American companies and for the US tax system to work alongside the global minimum tax framework without interference.

A document released by the Organization for Economic Cooperation and Development details the terms of a so-called side-by-side system negotiated by member countries.

Treasury Secretary Scott Bessent called the agreement is a “historic victory in preserving U.S. sovereignty and protecting American workers and businesses from extraterritorial overreach.”

Treasury will continue to engage at the OECD to ensure the agreement’s full implementation, he said in a statement. Lawmakers and Treasury officials have acknowledged that it will take time for countries to adopt the new side-by-side deal into their local laws, especially if countries introduce new tax laws in their yearly budget proposals.

The package has five components, including a series of simplification measures to reduce compliance burdens on multinational companies and the treatment of tax incentives, according to an OECD press release.

“This agreement by the Inclusive Framework including more than 145 countries is a landmark decision in international tax co-operation,” OECD Secretary-General Mathias Cormann said in the release.

The global minimum tax, also known as Pillar Two of a 2021 international tax pact, was devised to limit profit shifting by stanching harmful tax competition, in which countries provide tax holidays to attract foreign investment. Pillar Two seeks to impose a 15% minimum levy on multinational companies in every country where they operate.

The Trump administration demanded early in 2025 that US companies be exempt from the minimum tax’s income inclusion rule and undertaxed profits rule. And key Republicans in Congress threatened retaliation against foreign companies if the demand wasn’t met.

The income inclusion rule, or IIR, allows the parent country of a multinational to collect tax if its subsidiary’s local jurisdiction is charged a tax rate below 15%.

The undertaxed profits rule, or UTPR, allows a country applying the measure to collect tax from a company if both its parent jurisdiction and the local country aren’t charging at least a 15% rate.

Slew of Safe Harbors

The OECD’s document sets out a raft of safe harbors meant to apply the side-by-side system, more favorable treatment of substance-based tax incentives, and a permanent, simplified method that companies can use to calculate their global minimum tax liability.

The side-by-side system will operate based on two safe harbors—the ultimate parent entity safe harbor, and the side-by-side safe harbor. These rules will apply to multinationals in jurisdictions recognized by the OECD’s Inclusive Framework—countries involved in the global tax deal negotiations—as “having an eligible tax regime.”

The OECD published a list of qualified regimes under the side-by-side agreement, which currently includes only the US.

Multinational groups will also benefit from better treatment of certain “expenditure-based” and “production-based” tax incentives.

The OECD sets a limit for such “substance-based” incentives, like nonrefundable R&D tax credits—those “that are strongly connected to economic substance in the jurisdiction.” This will be done through a safe harbor that will eliminate the top-up tax that would “otherwise be attributable” to such incentives, according to the OECD.

A substance-based tax incentives safe harbor allows for certain qualified tax incentives to be treated as an addition to covered taxes. Businesses can claim incentives under the safe harbor “equal to the greater of 5.5% of the payroll costs or depreciation of tangible assets in the jurisdiction,” according to the OECD.

The OECD package also introduced an effective tax rate safe harbor for multinationals, allowing a simplified income calculation based on financial accounting data for businesses that can demonstrate they don’t have top-up tax liabilities in Pillar Two jurisdictions.

The safe harbor, allowing companies to avoid complex and expensive “GloBE” calculations, will be in place for multinationals in all jurisdictions from 2027. Companies will qualify for it by removing items like excluded dividends and other adjustments.

The group also agreed to extend a transitional country-by-country reporting safe harbor to the end of 2027, to allow for a smooth implementation of the simplified ETR safe harbor.

The temporary safe harbor was due to expire at the end of 2026, and allows companies to use information they already share with governments for tax transparency to calculate their global minimum tax liabilities.

Side-by-Side Safe Harbor

The side-by-side safe harbor is the first of two rules that will allow US companies to be exempt from some of the minimum tax rules.

The safe harbor, according to the OECD, recognizes that there are jurisdictions that apply a minimum tax on domestic and foreign-earned income, and it minimizes the compliance burden for companies that are headquartered in these countries.

Multinational companies are eligible to elect the side-by-side safe harbor if their headquarter country: has eligible domestic and worldwide tax systems, provides a foreign tax credit for qualified domestic minimum top-up taxes, or QDMTTs, and has enacted its eligible domestic and worldwide tax systems before Jan. 1, 2026.

The QDMTT, one of three key rules in the global minimum tax framework, allows a country to apply a 15% minimum tax domestically. Countries including Australia, Japan, the UK, and many EU countries have a QDMTT.

A company that can elect the side-by-side safe harbor will be insulated from the IIR and UTPR. The OECD notes, however, that this safe harbor won’t impact the application of QDMTTs, a significant feature that observers say will help to preserve the effectiveness of Pillar Two.

UPE Safe Harbor

The second safe harbor under the side-by-side system is the UPE safe harbor, which effectively insulates US companies on US soil from Pillar Two.

The safe harbor sets out terms for a country that’s a “Qualified UPE Regime” including: a 20% nominal corporate income tax rate, a QDMTT or a 15% corporate alternative minimum tax based on financial statement income, and “no material risk” that companies headquartered in the jurisdiction will be subject to an effective tax rate below 15% on their domestic profits.