Global minimum tax holds despite Trump’s exemption
Rumours of the death of Pillar 2, the OECD’s global minimum tax, appear to have been exaggerated, but the international, rules-based order may be discovering its limits, says Tim Sarson
Businesses across the globe welcomed in 2026 with the news that the Organisation for Economic Co-operation and Development (OECD) had published the long-awaited update to the 15 per cent global minimum tax, known as Pillar 2, and a new ‘side by side’ system that exempts the US from the rules.
This is important because it will shape how multinationals will be taxed on their global profits for the foreseeable future and define boundaries of cross-border tax competition. And, as in so many walks of life when it comes to geopolitics, we’ve been teetering on a precipice between global consensus and global chaos while waiting to find out the state of play.
In brief, they’ve managed to hold it together. Just.
The world of tax has become another front in the struggle over the so-called ‘International Rules Based Order (IRBO)’, which is now under pressure from the great power politics. What is the “IRBO”? Essentially, it’s those global institutions and standards that, over the decades, countries have built together to support international trade. And, for the most part, they have been adhered to.
When you cast your eye down the list of multilateral treaties and institutions you realise how indispensable so many of them are: the law of the sea, the Geneva conventions, the World Trade Organisation rules, the International Telecoms Union, climate change accords, and the CITES ivory trade ban.
Which brings us to Pillar 2. The OECD is one of those multilateral institutions that epitomises the IRBO. It shapes economic relations between developed countries and particularly their tax rules.
Pillar 2 is arguably its most ambitious tax project to date. The OECD had never before set actual tax rates nor generally ventured into writing detailed rules that look and feel more like domestic tax legislation. That, plus a bunch of admin processes, is what Pillar 2 has become.
But there has been a notable shift in recent years and here’s a brief run-down of what happened.
The US, previously one of the strongest backers of the project, stated its opposition. Congress brought forward draft “retaliatory” measures targeting countries that implemented the Undertaxed Profits Rule (UTPR) of Pillar 2. Faced with this, the G7 struck a deal last June that would exclude US parented corporations from Pillar 2. This was taken back to the inclusive framework to agree and codify. And, hey presto, we had a new set of rules as of 5 January.
After this “side-by-side” deal for the US was announced we’ve had an uncertain six months. Some countries objected; at one point the German chancellor declared the project dead. We knew there would likely be changes – particularly around tax credits, and there were questions about what China would do next.
In theory, this could have killed Pillar 2. First, it might have collapsed if major backers had bailed. Or secondly, eroded from the top down, with big economies demanding their own US-style carve-outs. Third, it could have been undermined from below, with low-tax jurisdictions rowing back their domestic minimum taxes for US multinationals. Lastly, reduced to something in name only, as changes in the definition of qualifying tax incentives fatally undermine 15 per cent as a real minimum rate.
Four possible scenarios
It’s not turned out like that, at least not yet. The defences seem to have been shored up. Let’s go through those four possible coups de grace:
Number one didn’t happen. The consensus held: a remarkable effort, but then the OECD has form in seeming to achieve agreement where others predicted failure.
Nor did number two. The “side-by-side” rules as drafted leave little space for countries without their own US-style minimum tax rules to negotiate a carve out.
The third was mitigated: domestic top-up taxes only “qualify” if they’re not discriminatory, meaning tax havens can’t offer lower rates just to US-parented groups (though some could still abandon top-up taxes entirely if most of their investment is American). Let’s keep an eye out for that.
Number four does dilute the margins of the 15 per cent rate, but it doesn’t go as far as some feared, and countries like China wanted. It still leaves us far from where we were before Pillar 2.
And, of course, no matter what we have ended up with, we’re still left with the bureaucracy.
Rumours of the death of the global minimum tax and with it the OECD’s influence were somewhat premature, then. They’ve kept the show on the road, despite the geopolitical headwinds. But that’s not the end of the story. Let’s see where we are in a couple of years.
I’m also as convinced as ever that this project marks the high-water mark of the organisation’s international tax ambition, and that of the G7 and G20. The International Rules Based order is now starting to discover its limits.
Tim Sarson is head of tax policy at KPMG