After months of intense negotiations, the United States has secured a side-by-side agreement with the Organization for Economic Development and Cooperation (OECD) to exempt U.S. companies from its global minimum tax. The agreement is a welcome change of direction for American businesses that have been at the forefront of delayed and complex negotiations for nearly five years.
In October 2021, the U.S. joined over 130 other countries in an international tax agreement brokered by the OECD that would reallocate taxing rights among nations (Pillar One) and implement a global minimum tax (Pillar Two). The agreement was, in part, intended to resolve contentious global tax developments such as digital services taxes (DSTs). However, its proposed solutions would have resulted in the U.S. losing a larger share of its tax base than any other nation under the reallocation of taxing rights. Furthermore, the global minimum tax would have violated tax sovereignty and eroded tax competition.
Despite these concerns and other issues raised by members of Congress and outside observers—including National Taxpayers Union (NTU)—former President Biden’s international tax negotiators pressed forward with a deal that was burdensome for American companies and unlikely to get congressional approval. Indeed, Pillar One, the OECD deal’s reallocation of taxing rights, has been unofficially but effectively dead since President Trump’s election, as all parties realize that it would not be possible to secure the two-thirds Senate vote needed for approval of international treaties.
Now, less than one year into President Trump’s second term, the White House and congressional Republicans have successfully forced a change in course at the OECD that will better serve American companies. The side-by-side agreement exempting the U.S. from major global minimum taxes under Pillar Two comes after President Trump’s formal withdrawal from the OECD tax negotiations via executive order and subsequent trade war threats.
Republicans lawmakers provided momentum through the near-passage of the so-called “revenge tax” that would have affected citizens and businesses in countries that imposed the global minimum tax. Congress also paved the way for an OECD concession through changes to the domestic international tax regime created by the Tax Cuts and Jobs Act of 2017. The OECD acknowledges that U.S. law under the One Big Beautiful Bill Act has “similar policy objectives, overlapping scope, and a complementary policy impact” as its global minimum tax.
The side-by-side agreement is only applicable to the U.S., although other countries may attempt to qualify their existing tax for the agreement within the first half of 2026. The agreement exempts American companies from Pillar Two’s Income Inclusion Rule (IIR) and Undertaxed Payments Rule (UTPR). The IIR would allow a company’s ultimate parent jurisdiction to impose additional tax on foreign profits deemed to be undertaxed, while the UTPR would serve as a backstop to allow local foreign jurisdictions to tax those companies. Exempting American companies from these rules successfully avoids the most harmful and extraterritorial taxes sought by the OECD.
While these exemptions amount to a major achievement, American companies are still subject to the OECD regime. Subsidiaries will still be subject to Qualified Domestic Minimum Top-up Taxes (QDMTT) in the foreign countries they operate in to bring the subsidiary’s effective tax rate up to a minimum of 15%. A QDMTT has been implemented in more countries than the UTPR and IIR. The agreement also does not exempt American companies from complex reporting requirements under the OECD’s Pillar Two tax information return, although reporting may become simpler.
This new agreement shows that, while President Trump may publicly withdraw from international organizations in a signal of unwavering commitment to his international policies, White House negotiators are willing to sit at the table with foreign counterparts to secure a negotiated outcome. Importantly, it also proves the strength of American policies when the White House and Congress work together. Taxpayers can hope that the White House and Congress can replicate this success in negotiations with trade partners to reduce barriers for American importers and exporters.