The international tax landscape: Minimum Tax and Maximum Confusion

This contribution analyzes the recent instability and uncertainty affecting the international tax landscape as of mid-2025 and identifies the key items to monitor regarding the evolution of the Global Minimum Tax in light of the G7 Statement on the so-called Side-by-Side system.

The climax of multilateralism on tax matters

Multilateral cooperation on tax matters reached its climax in the first 20 years of the 21^st century. Post World War II the international tax system was effectively shaped by the OECD, largely reflecting a U.S.-driven consensus that, while favoring residence-based taxation, provided stability for several decades. The 2008 global financial crisis underscored the need for a substantial overhaul of the international tax system, also in light of increased public attention and the emergence of new actors in the debate. The OECD was quick to adapt.

With the support of the G20, FATCA and the Common Reporting Standard brought global tax transparency, while the BEPS Project aimed to modernize the rules on the taxation of multinationals and fight blatant tax avoidance schemes. BEPS also addressed the broader challenges raised by the digitalization of the economy, which went beyond mere tax planning and had to do with the allocation of taxing rights (i.e. which countries should levy tax on income derived from new - and old - business models).

The work post-BEPS 1.0 continued in the Inclusive Framework (IF) which involved developing countries on an equal footing and focused on technical work on the Global Minimum Tax and on the reallocation of taxing rights for large multinationals ("Pillar One"). In October 2021 a landmark agreement was announced with effectively all countries supporting the introduction of a global minimum tax and a new multilateral convention for the reallocation of taxing rights on part of the profits of a few large consumer-facing multinationals, what President Trump later dubbed the Global Tax Deal.1

The erosion of trust in multilateralism

Society is changing fundamentally, with exponential technological developments in front of us and new actors on the scene. Actors that do not necessarily value democracy and freedom more than efficiency and speed. Geopolitical tensions, populism and nationalisms have contributed to the erosion of trust in multilateralism in general, with the international tax system as one of the first to be affected. The instability brought by the new U.S. administration, the war in Europe and the tragedy in Gaza have all affected multilateral cooperation. In a memorandum dated 20 January 2025,2 the Trump administration formally rejected the Global Tax Deal, stating that it “has no force or effect within the United States absent an act by the Congress adopting the relevant provisions of the Global Tax Deal”. This was no surprise given the tones used in the campaign. Tariffs and taxes have been used recently to threaten US partners and reach deals on a number of related and unrelated issues.

Adding complexity to complexity, the United Nations is working to introduce source taxation of any cross-border service fee and – via a majority vote in the U.N. General Assembly3 - to develop a Multilateral Framework Convention that would inter alia implement that. In this evolving landscape, influential emerging economies such as China, Brazil, India, have notably refrained from adopting definitive positions on key international tax items, while some developing countries have started terminating their bilateral tax treaties.4

The ensuing volatility in key public policies

While “deals” are built and unbuilt in weeks if not days, on 28 June 2025, G7 countries issued a statement on the Global Minimum Tax, according to which a “side-by-side” framework would be pursued. Based on this framework, U.S. parented groups will be fully excluded from the application of the UTPR and IIR of the Global Minimum Tax, with a monitoring mechanism to preserve a level playing field. It was also announced that work would be undertaken for material simplifications to the overall global minimum tax administration and compliance framework, as well as to change the treatment of substance-based tax incentives. Following the G7 meeting, the G20 issued a declaration on 18 July 2025 according to which members reaffirmed their commitment to work constructively towards the implementation of the GMT, ensuring that concerns relating to the level playing field, the treatment of substance-based tax incentives, and risks of base erosion and profit shifting are duly addressed.5 Finally, the summit of Shanghai Cooperation Organization of September 2025 is a clear indication of a changing balance in world geopolitics and that historically has a relevant impact on international tax policy.6

In this multifaceted context, there is a visible growing trend of increased aggressiveness on the part of certain local tax administrations, not necessarily in line with the rule of law and often without underlying effective legal remedies. Meanwhile, the EU has made proposals like the so-called CORE, a “financial contribution” applied to EU businesses with net annual turnover above €100 million and calculated using fixed brackets,7 which show a worrying short-sightedness, particularly at a time when EU leadership is sought in several areas by many orphans of the U.S.

Key items to monitor in relation to the Global Minimum Tax

What the future will bring is unclear; what is clear is the need to follow developments, stay course, and adapt as necessary. At the moment, it is rather unclear how the G7 and G20 statements will translate into new rules and be implemented in practice. In the present climate, stakeholders must engage proactively on both the technical challenges and the underlying political tensions in international taxation. Despite the official declarations, related praises and criticisms, several fundamental details will have to be clarified and whatever decision will have to be cleared by the entire membership of the Inclusive Framework.

In our view, the key technical issues related to the future of the Global Minimum Tax and of its format include:

1.          What is a “U.S. parented group”? This is possibly the most important question to understand the scope and breath of the G7 “deal”. In theory it could refer to (i) a group with a U.S. Ultimate Parent Entity (UPE) as defined under the GloBE rules, (ii) a group with an Intermediate Parent Entity (IPE) as defined under the GloBE rules located in the U.S., or (iii) any group subject to the U.S. GILTI (recently renamed as Net CFC Tested Income, NCTI).

2.          How to introduce the exclusion for “U.S. parented groups”? The exclusion would likely be implemented via the introduction of a safe-harbor, but it is not clear how that safe harbour will be drafted, i.e., whether it will refer to the U.S. or whether it will list criteria that – if met by a jurisdiction – will render the safe harbour applicable to any jurisdiction. A related question for EU countries is whether this will require an amendment of the EU GMT Directive. The EU Commission has already announced that no changes will be made, possibly relying on Article 32 of the EU GMT Directive, which contains a dynamic link with OECD-agreed Safe Harbours. It is however not clear how other potential changes (for example in relation to the treatment of tax incentives) could be implemented without a change in the Directive. Questions are increasingly raised regarding the original need for a such a Directive, particularly in light of the complexity of the subject matter and the need for constant refinement of the rules, as witnessed by the constant release of Agreed Administrative Guidance. To put it bluntly: either the Directive was just a bad idea or a mechanism must be established to update it swiftly every time is necessary.

3.       What will be the destiny of the UTPR?  The G7 announcement foresees the exclusion of all profits of U.S. parented groups from the application of UTPR. Clearly the current UTPR Safe Harbor (set to expire in any case at the end of 2025) will not achieve the objective and therefore a simple prorogation of the same would not be feasible. While the rationale for excluding the application of the IIR could at least theoretically be found in the fact that those low-taxed profits will be subject to NCTI, this is not the case with the UTPR. The key question here is whether there can be a truly global minimum tax without the back-stop of the UTPR. In essence, without the application of the UTPR, the GMT would resemble more to a coordinated CFC, designed in alignment with domestic minimum taxes.

4.          What will be the impact on Domestic Minimum Top-Up Taxes (DMTTs)? The application of DMTTs is safeguarded under the G7 Deal. In several instances, Qualified DMTTs were introduced to safeguard domestic tax revenue that would have otherwise been taxed by another jurisdiction. Once this is not the case anymore, the question is whether these jurisdictions will reconsider the (potential) adoption of their domestic minimum taxes. An additional question is whether the “qualified” status of a DMTT will still be relevant and for which purposes. In that context, jurisdictions will likely start evaluating a conditional DMTT, i.e., excluding from its application groups that are not subject to the IIR or UTPR in other jurisdictions and it will have to be seen what consequences this will trigger Finally, it is not clear whether the implicit rule-order and consequential preference of source taxation will remain in place. In fact, under current rules there is no push down of CFC taxes into a DMTT and those take precedence over the IIR. The question is therefore whether this compromise will be maintained or whether there will be an obligation or an option for CFC taxes be pushed down (hence decreasing or eliminating DMTT liability).

5.          Which Tax Credits will be safeguarded? The statement makes reference to substance-based credits and hence the question is what will constitute “substance” for this purpose and how that will be assessed. Candidates for inspiration are the criteria used for the Substance-Based Income Exclusion (SBIE), i.e., fixed assets and employees. At the same time, if the objective is to safeguard tax incentives on substantial business activities, the question is also whether this could be done differently. For instance, by increasing the SBIE rate for certain activities, such as cleantech, defense and others that are considered to be worth the exception one could achieve a similar result.

6.          Operational and other issues: A key question is whether the exclusion will apply from 2024, from 2025 or 2026 onward, and whether and how administrative and compliance aspects will be adjusted accordingly. In addition, the treatment of Investment Entities and POPEs will also need to be addressed. Specifically, it should be determined whether the notion of a “U.S. parented group” includes groups with a U.S. Investment Entity (or, more generally, an Excluded Entity) as their UPE, or groups that, while having a non-U.S. UPE, have a U.S. POPE (considering that, under the ordinary GloBE Rules, the POPE jurisdiction would be entitled to apply the IIR regardless of whether the UPE jurisdiction does so).

Concluding remarks: When you are in a hole stop digging

The operational and revenue complexities of the Global Minimum Tax were already widely acknowledged, and empirical evidence suggested that receipts may fall short of original expectations. These issues are now compounded by the position expressed by the U.S. and the reaction of other members of the Inclusive Framework. For countries that have already implemented the Global Minimum Tax, serious consideration should be given to suspend its application until at least the most relevant details are clarified and it is therefore possible to assess them. The risk is otherwise that business is caught in the middle, with local legislation not necessarily aligned with the model rules and related administrative guidance, with widespread uncertainty regarding the interaction of different rules of different countries. This does not mean abandoning the Global Minimum Tax, it means reassessing its key features in light of a changed political environment.

• 1OECD/G20 Inclusive Framework on BEPS, “Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy” (Oct. 8, 2021), available at this link.
• 2White House Memorandum, “The Organization for Economic Co-operation and Development (OECD) Global Tax Deal” (Jan. 20, 2025), available at this link.
• 3Of the 182 countries present, 125 voted in favor, 48 against, and 9 abstained. OECD members, such as the United States, the United Kingdom, Japan, Canada, Australia, and European countries, succumbed to the vote, while broad consensus was expressed by G77 and Africa Group countries. Abstentions came from Armenia, Costa Rica, El Salvador, Iceland, Mexico, Norway, Peru, Turkey, and the United Arab Emirates.
• 4See for example, the termination by Burkina Faso, Mali, and Niger of their tax treaties with France.
• 5G20, “Finance Track Communiqué 3rd Finance Ministers & Central Bank Governors Meeting” (Jul. 18, 2025), available at this link.
• 6The joint statement of the Shanghai Cooperation Organization’s member following the summit is available at this link.
• 7EU, Proposal for a COUNCIL DECISION on the system of own resources of the European Union and repealing Decision (EU, Euratom) 2020/2053 (COM/2025/574 final), available at this link.