The recently agreed “side-by-side” mechanism that grants special treatment to the US also modifies Pillar 2 on tax benefits. Pillar 2 was designed to put a 15 percent floor on tax competition and under the original Pillar 2 rules, tax breaks were considered to reduce covered taxes for the purpose of computing the effective tax rate. The only exception was refundable tax credits, which were considered to increase taxable income but not reduce the effective tax rate.
Abandoning this strong rationale, the new agreement introduces a category of ‘substance-based tax incentives’ that may be granted without reducing the effective tax rate for Pillar 2 purposes. These incentives are limited to activities linked to real economic substance and are capped at either 5.5 percent of payroll or depreciation, or 1 percent of net tangible assets. Regrettably, no comprehensive impact assessment of this has been done, and it is difficult to determine how much tax competition this adjustment may reintroduce into the system. What is clear is that it modifies the original intention of Pillar 2.
This analysis was first published by Bruegel
Has the Global Minimum Tax Survived Trump?
One of Donald Trump’s first acts in his second term as United States President was to issue a 20 January 2025 executive order rejecting application in the US of a global tax deal brokered in 2021 by the Organisation for Economic Co-operation and Development. The deal’s so-called Pillar 2, which established a global minimum tax of 15 percent on corporate profits, had “no force or effect in the United States,” according to the order.
A year later, Trump seems to have got his way. The 147 jurisdictions that agreed the global deal with the OECD/G20 Inclusive Framework (IF) have agreed on a tax package establishing a “side-by-side” mechanism that grants special treatment to the US.
Trump’s Treasury Secretary Scott Bessent called the updated agreement a “historic victory preserving US tax sovereignty. However, the agreement does not amount to a full dismantling of Pillar 2. It preserves the minimum tax architecture. Differentiated treatment for the US is regrettable but the US has its own minimum tax, which, with a 14 percent rate, is only slightly below the global rate but which applies a much narrower base. Reality is therefore more nuanced than US victory claims, which may explain why all IF members, even China, India and developing countries more broadly have signed the new agreement, despite reservations about an asymmetrical deal twisted in favour of the US…
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Citation: Saint-Amans, P. (2026) ‘Has the global minimum tax survived Trump?’ Analysis, 13 January, Bruegel, available at https://doi.org/10.64153/HIUN6608