IT's been a while since we discussed the famous broken pillars of the OECD. Recent developments however do not bode well for some 148 countries and jurisdictions that signed up or were coerced/cajoled to sign up for the OECD's solution to the problem of profit shifting by multinationals operating in their countries. More than half of these countries are low- or middle-income developing countries. There is no ghost of a chance of any breakthrough for Pillar one that promised attributing a small profit of MNEs to the market countries. The 'America first' policy vigorously pursued by the Trump administration means that other countries/ jurisdictions are to pay tributes to the USA for the privilege of doing business with the USA- there cannot be any question of US multinationals paying any extra tax on their income whether from their routine or regular profits anywhere but in the USA.

European nations keen on ending tax competition amongst themselves for attracting foreign investments wanted to have a minimum tax floor but consensus eluded them in finding the rate of tax to be adopted. That's the genesis of the minimum tax proposal. But, the Trump1 administration will have none of that too. The Biden administration however seized on the idea of global minimum tax working on the logic that a minimum tax on big multinationals anywhere in the world would make it unprofitable for American multinationals to shift profits to tax havens or in jurisdictions that offer very low/ nil tax on MNC profits parked there and would force them to retain more profits in the USA thereby ultimately benefitting the American coffers. It was under the Biden administration that the minimum tax rate of 15% was settled between the Americans and the Europeans under the aegis of G-7 countries and was dutifully endorsed by the so-called Inclusive Framework.

Emboldened by the turn of events, the OECD secretariat went full steam ahead and published papers after papers on rules, guidance, Commentaries relating to the working of the Pillar two. Some 50 jurisdictions including the EU member countries have already put in place their domestic legislation for operationalizing the rules in this regard. It is important to recall that Pillar two was designed such that its implementation was not compulsory but once a jurisdiction decided to implement, the OECD designed rules and regulations have to be followed. Before the end of its term, the Biden administration however failed to pass the required legislation in this behalf.

Enter Mr. Donald Trump -version II and everything that 'sleepy Joe' did or agreed to had to be reversed. And on day 1, as promised, he issued the following Memorandum:

The OECD Global Tax Deal supported under the prior administration not only allows extraterritorial jurisdiction over American income but also limits our Nation's ability to enact tax policies that serve the interests of American businesses and workers. Because of the Global Tax Deal and other discriminatory foreign tax practices, American companies may face retaliatory international tax regimes if the United States does not comply with foreign tax policy objectives. This memorandum recaptures our Nation's sovereignty and economic competitiveness by clarifying that the Global Tax Deal has no force or effect in the United States.

Section 1. Applicability of the Global Tax Deal. The Secretary of the Treasury and the Permanent Representative of the United States to the OECD shall notify the OECD that any commitments made by the prior administration on behalf of the United States with respect to the Global Tax Deal have no force or effect within the United States absent an act by the Congress adopting the relevant provisions of the Global Tax Deal. The Secretary of the Treasury and the United States Trade Representative shall take all additional necessary steps within their authority to otherwise implement the findings of this memorandum.

Sec. 2. Options for Protection from Discriminatory and Extraterritorial Tax Measures. The Secretary of the Treasury in consultation with the United States Trade Representative shall investigate whether any foreign countries are not in compliance with any tax treaty with the United States or have any tax rules in place, or are likely to put tax rules in place, that are extraterritorial or disproportionately affect American companies, and develop and present to the President, through the Assistant to the President for Economic Policy, a list of options for protective measures or other actions that the United States should adopt or take in response to such non-compliance or tax rules. The Secretary of the Treasury shall deliver findings and recommendations to the President, through the Assistant to the President for Economic Policy, within 60 days. ¹

Separately, under the America First trade policy, the President directed the Treasury Secretary as follows:

(j) The Secretary of the Treasury, in consultation with the Secretary of Commerce and the United States Trade Representative, shall investigate whether any foreign country subjects United States citizens or corporations to discriminatory or extraterritorial taxes pursuant to section 891 of title 26, United States Code ²

It was thereafter that the United States legislature proposed a section 899 as part of the One Big Beautiful Bill that became famous as the revenge tax proposal. The House version and the Senate version differed somewhat as regards details.

The Impact of Section 899 - Rate Increases

Section 899 would provide for increased tax rates on applicable persons, starting at a rate increase of 5 percentage points and increasing annually by an additional 5 percentage points, up to a maximum of 20 percentage points under the House Bill and 15 percentage points under the Senate Draft. The increased rates would apply to taxes on "fixed determinable, annual, or periodical income", taxes imposed under the Foreign Investment in Real Property or Tax Act, corporate income taxes on income effectively connected to a U.S. trade or business, U.S. branch profits taxes, and taxes imposed on the investment income of private foundations. As noted above, the House Bill applies the increased tax rate in respect of any country with an unfair foreign tax, while the Senate Draft only applies the increased tax rate in respect of any country with an extraterritorial tax ³.

It transpires that the proposed section 899 was a negotiation tactic, a threat held out against the Pillar two agreement already reached by the OECD and was a Trumpian way of making a deal or modifying a deal. And it worked. On June 28, 2025, at the G-7 meet held in Canada, the Canadian Presidency announced as follows:

"Earlier this year the U.S. Secretary of the Treasury outlined the United States' concerns regarding the Pillar 2 rules agreed by the OECD/G20 Inclusive Framework on BEPS and set out a proposed 'side-by-side' solution under which U.S. parented groups would be exempt from the Income Inclusion Rule (IIR) and Under taxed Profits Rule (UTPR) in recognition of the existing U.S. minimum tax rules to which they are subject. 

Following discussions on this issue - which were informed by analysis of the respective minimum tax regimes, including consideration of recently proposed changes to the U.S. international tax system based on the Senate amendment of H.R. 1 (introduced June 16, 2025), the  One Big Beautiful Bill Act  (OBBBA), the removal of section 899 in the Senate version of the OBBBA, and consideration of the success of Qualified Domestic Minimum Top-up Tax (QDMTT) implementation and its impact - there is a shared understanding that a side-by-side system could preserve important gains made by jurisdictions in the Inclusive Framework in tackling base erosion and profit shifting and provide greater stability and certainty in the international tax system moving forward.

This understanding, which builds on our continued commitment to collaborate jointly through the Inclusive Framework to address the potential risks of base erosion and profit shifting, is based on the following accepted principles:

Delivery of a side-by-side system will facilitate further progress to stabilize the international tax system, including a constructive dialogue on the taxation of the digital economy and on preserving the tax sovereignty of all countries.

We recognize that these issues have relevance to a wider group of jurisdictions and look forward to discussing and developing this understanding, and the principles upon which it is based, within the Inclusive Framework with a view to expeditiously reaching a solution that is acceptable and implementable to all. 

We also recognize that the removal of section 899 is crucial to this overall understanding and to providing a more stable environment for discussions to take place in the Inclusive Framework."

In summary, the G-7 agreed to exempt the US based companies from the IIR and UTPR rules of the minimum tax provisions considering that USA already has a minimum tax on American companies and in exchange for the removal of the threat of the revenge tax proposal from the US tax code.

It was subsequently reported ⁴ that in August, 2025, more than two dozen countries objected to the exception made for the US companies with China apparently arguing that any approach that targets one country "is a violation of the principle of fair competition. The solution should ensure that equal treatment be given in similar circumstances."

The Estonian delegation, objected to a system that allows the US minimum tax on foreign income, known as GILTI, to be "pushed down" in jurisdictions whereby GILTI taxes paid by the US parent company would be designated to foreign subsidiaries resulting in less domestic minimum tax collection.

In recent months, US officials have proposed making the GILTI push-down optional for countries to adopt. "It is the right of each jurisdiction to tax the profits of its residents earned in this jurisdiction, and it is not acceptable that the jurisdiction would have to give credit for the taxes paid by the US parent before being able to impose its own tax, " the Estonians said. "Even if it were optional, it could put pressure on certain jurisdictions to introduce this option for non-tax reasons and would jeopardize tax sovereignty of certain jurisdictions. ⁵

The Bloomberg report mentions that New Zealand opined that- "The US's refusal to accept the application of the UTPR to US headquartered groups' non-US profits is not consistent with tax sovereignty. Countries have the right to determine how much tax is imposed on income that is sourced in their country, or derived by their residents"

Nevertheless, on the 5th of January 2026, the OECD announced an agreement with the USA. According to a press release- "The 147 countries and jurisdictions working together within the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) have agreed on key elements of a package that charts a course forward for the co-ordinated operation of global minimum tax arrangements in the context of a digitalised and globalised economy."

Following months of intense negotiations, the comprehensive package for a "side by side" arrangement announced today represents a significant political and technical agreement which will set the foundation for stability and certainty in the international tax system. It will preserve the gains achieved so far in the global minimum tax framework and protect the ability for all jurisdictions, particularly developing countries, to have first taxing rights over income generated in their jurisdictions.

As can be seen, the pitch is again the benefits that will apparently accrue to developing countries, perhaps on the ground that QDMTT will not be affected. The Press release mentions the following five key components of the side-by-side agreement.

First, a series of simplification measures will reduce compliance burdens for multinational enterprises (MNEs) and tax authorities in calculating and reporting under the global minimum tax rules.

Second, the package further aligns the treatment of tax incentives globally through the introduction of a new targeted substance-based tax incentive safe harbour.

Third, new safe harbours are available to MNE Groups having an ultimate parent entity located in an eligible jurisdiction which meets minimum taxation requirements.

Fourth, the package includes an evidence-based stock take process to ensure a level playing field is maintained for all Inclusive Framework Members.

Fifth, the package reinforces the objective that qualified domestic minimum top-up tax regimes remain a primary mechanism in the global minimum tax framework for ensuring the protection of local tax bases, particularly in developing countries. ⁶

Subsequent to the OECD announcement, the US Treasury Secretary issued the following triumphant release:

"President Trump's Day One Executive Orders made clear that the Biden Administration's proposed OECD Pillar Two deal would have no force or effect for the United States.

Today, the Administration delivered on that promise. In close coordination with Congress, Treasury worked to reach agreement with the more than 145 countries in the OECD/G20 Inclusive Framework to have U.S.-headquartered companies remain subject to only U.S. global minimum taxes while exempting them from Pillar Two. This side-by-side agreement recognizes the tax sovereignty of the United States over the worldwide operations of U.S companies and the tax sovereignty of other countries over business activity within their own borders.

Further, the agreement protects the value of the U.S. R&D credit and other Congressionally approved incentives for investment and job creation in the United States, fulfilling the shared goal of U.S. leadership in innovation and technological advancement.

This agreement represents a historic victory in preserving U.S. sovereignty and protecting American workers and businesses from extraterritorial overreach.

Treasury will continue engaging with foreign countries to ensure full implementation of the agreement, build greater international tax stability, and move toward a constructive dialogue on the taxation of the digital economy." ⁷

The USA can justly claim victory in that its ruse of the revenge tax forced the Europeans to back down and agree to almost all the terms set by it. It is the US companies that initially set off the OECD's BEPS work. Tax Justice Network reports that there is an escalation in tax abuse by US multinational corporations that are now shifting twice as much profit out of the countries where they operate in and into the US, but are paying even less tax in the US than they were before Trump's tax cuts (2017) were introduced. According to this report, US-headquartered multinational corporations cost countries around the world USD 495 billion in lost corporate tax - some 29% of the global total of USD 1.7 trillion lost to global corporate tax abuse. The United States itself is the biggest loser to global corporate tax abuse, losing USD 271 billion to its own multinationals. ⁸

While the USA claims victory of its tax sovereignty, the OECD document does not make clear how the issues relating to tax sovereignty raised by various members as discussed earlier were ultimately overcome and who said what in the meetings. The OECD is also claiming victory in the name of the developing countries of the Inclusive Framework but these countries are unlikely to benefit anything from this trans-Atlantic power dance.

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¹ https://www.federalregister.gov/documents/2025/01/30/2025-02043/the-organization-for-economic-co-operation-and-development-oecd-global-tax-deal-global-tax-deal#print

² https://www.govinfo.gov/content/pkg/DCPD-202500145/pdf/DCPD-202500145.pdf

³ https://www.hsfkramer.com/insights/2025-06/proposed-irc-section-899-revenge-tax-targets-residents-of-certain-discriminatory-offending-foreign-countries

⁴ https://news.bloombergtax.com/daily-tax-report/countries-list-host-of-qualms-about-us-side-by-side-tax-deal

⁵ https://news.bloombergtax.com/daily-tax-report/countries-list-host-of-qualms-about-us-side-by-side-tax-deal

⁶ https://www.oecd.org/en/about/news/press-releases/2025/12/international-community-agrees-way-forward-on-global-minimum-tax-package.html

⁷ https://home.treasury.gov/news/press-releases/sb0350

⁸ https://taxjustice.net/reports/the-state-of-tax-justice-2025/