About the author:
Olivier Cano is a Consultant in Economic and Fiscal Policy at Saint-Amans Global Advisory and a member of the Fondation Robert Krieps.
On his first day in office, President Donald Trump published a memorandum[i] announcing that the OECD’s Global Tax Deal “has no force or effect within the United States” and instructing the Treasury Secretary to notify it to the OECD.
President Trump’s memorandum also ordered the U.S. Treasury Department to develop a report with options for “retaliatory measures” against countries that might enact measures that “disproportionately affect American companies.”
With his memorandum, President Trump targeted the so-called “Two-Pillar” solution agreed by more than 140 countries at the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) in 2021[ii].
This contribution will focus on the consequences for Pillar Two, the so-called Global Minimum Tax (GMT). Following the memorandum, some stakeholders are called the GMT dead. While there are many uncertainties regarding the outcome, one thing is certain: the GMT, like our favourite secret agent, will die another day.
A quantum of solace – A Global Minimum Tax
Pillar Two aims to establish how much companies are taxed by imposing a global minimum tax rate of 15% on Multinational Enterprises (MNEs) with a global turnover of at least EUR 750 million. It was developed to stop the global race to the bottom whereby jurisdictions lower corporate tax rates to attract companies. Pillar Two ensures that whenever the effective tax rate in a jurisdiction is below 15%, a top-up tax collects the difference between the effective tax rate and this 15% rate, based on three interlocking rules.
First, the low-tax jurisdiction where the constituent entity of the MNE is located has the primary right to collect the top-up tax through a Qualified Domestic Minimum Top-up Tax (QDMTT). Second, if the low-tax jurisdiction does not collect the tax, other jurisdictions where the parent company is located can collect the tax through the so-called Income Inclusion Rule (IIR). Finally, where a Qualified IIR does not apply, the top-up tax can be collected by any other jurisdiction implementing the GMT where a constituent entity of the MNE is located through the so-called Under Taxed Profit Rule (UTPR).
Pillar Two draws on the US Global Minimum Tax (GILTI – Global Intangible Low Taxed Income) introduced by the 2017 Tax Cuts and Job Act, which aimed to finance President Trump’s tax cuts by broadening the corporate income tax base. The GILTI enables the US government to tax its multinational companies whose effective tax rate outside the US fall below 12%. In 2017, the Trump administration did not object to other countries adopting a minimum tax, as long as US companies were sheltered, as they were subject to GILTI. The Biden administration changed the US position by accepting that American companies would not be sheltered from the GMT.
Does Trump have a Licence to Kill?
By stating in his executive order that the Global Tax Deal “has no force or effect within the United States”, many thought Donald Trump declared the GMT dead but the situation is more complicated than initial comments on the memorandum suggest.
There are two takeaways from the memorandum relevant for the GMT.
First, the US “withdrawal” from Pillar Two has no major consequences for its implementation. This is because Pillar Two is not an international treaty, but rather a “common approach” that countries agreed to implement individually. A critical mass of market jurisdictions is sufficient for the mechanism to work. This is currently the case as the European Union, Japan, the UK have adopted Pillar Two. The US has not implemented Pillar Two, but this will not have an impact on the more than 50 countries that have implemented it.
Second, the memorandum’s call for retaliatory measures against tax rules, “that are extraterritorial or disproportionately affect American companies” directly targets the Pillar Two UTPR. Such measures could indeed impact countries that implemented the GMT and use it against US companies. The memorandum implies that the US does not tolerate foreign countries collecting taxes on the under-taxed US profit. Countries that will implement the UTPR against the US risk facing trade sanctions according to the memorandum. Given the 21% Corporate Income Tax rate in the US and generous tax credits (like the R&D credit), some US companies may have an effective tax rate below 15% and are therefore likely to be caught by the UTPR in other countries.
The GMT has no time to die
A complete repeal of the GMT seems unlikely. Even if implementing countries such as Canada, Japan, UK were ready to repeal the GMT, which is not the case, the EU would be required to reach unanimity to change the directive implementing GMT. Moreover, the US will probably not fight countries for adopting GMT, as the US also benefits from fighting low-tax jurisdictions. The Trump administration will rather fight for countries not to implement the UTPR against American companies.
What is clear is that the tax conversation between the US and its partners will move from cooperation to tensions. The US did not attend the 1st Finance Minister and Central Bank Governor’s meeting G20 in February. Still, it is likely that the US keeps engaging with the OECD, as a common approach provides more tax certainty to businesses, which is relevant to the US.
Last month, the Trump administration named Rebecca Burch as deputy assistant secretary for international tax affairs at the Treasury, who attended the OECD Inclusive Framework (IF) on BEPS Plenary meeting from 7-10 April in Cape Town. Following the Plenary meeting the IF on BEPS issued a statement saying that “members recognised the critical importance of securing certainty and stability in the international tax system, in particular with respect to the implementation of Pillar Two and the ongoing Pillar One negotiations, agreeing to continue discussions in furtherance of this objective.[iii]” Hence, it can be expected that the US are ready “to play ball” by arguing that they remain committed to the overall tax work by the IF on BEPS, but they request that GILTI be recognised by the Pillar Two rules to shelter US Multinational Enterprises from the application of the GMT. The US could also request the implementation of a permanent “UTPR safe harbour”. Such a safe harbour would allow companies to be exempt from the UTPR if they are headquartered in a jurisdiction which has a nominal corporate income tax rate of at least 20%. Currently this safe harbour is transitional and will end on December 31, 2026.
To conclude, what does this mean for Luxembourg?
Luxembourg transposed the European GMT directive through a law adopted in December 2023 and the GMT entered into force starting December 31, 2024. In January 2025, Luxembourg’s Domestic Top up Tax and IIR were granted Qualified status by the OECD[iv], meaning that they are compliant with the GMT rules and that Luxembourg can benefit from transitionary safe harbour rules facilitating business compliance.
Against this background, it is crucial that Luxembourg continues to anticipate the adoption of Pillar 2, notably by reviewing all tax incentives that are being granted to companies. Tax incentives that are not compliant with the GMT rules will be either neutralised by Luxembourg’s QDMTT or by another country’s IIR or UTPR.
The GMT is here to stay and will be applied by the 50 jurisdictions which have already implemented it. After all, the reason why the international community decided to discuss on a GMT during more than 10 years has not vanished. Today’s international tax rules are not fit for facing the challenges posed by a digital economy and need to be fixed one way or another to avoid distortions and inequalities. The sooner, the better.
The Global Minimum Tax has no time to die.
[i] https://www.whitehouse.gov/presidential-actions/2025/01/the-organization-for-economic-co-operation-and-development-oecd-global-tax-deal-global-tax-deal/
[ii] https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/beps/statement-on-a-two-pillar-solution-to-address-the-tax-challenges-arising-from-the-digitalisation-of-the-economy-october-2021.pdf
[iii] https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/beps/statement-oecd-g20-inclusive-framework-on-beps-april-2025.pdf
[iv] https://www.oecd.org/content/dam/oecd/en/topics/policy-sub-issues/global-minimum-tax/administrative-guidance-globe-rules-pillar-two-central-record-legislation-transitional-qualified-status.pdf
