What is next after Washington exits the OECD global tax plan?

President Trump’s withdrawal from the global minimum corporate tax deal reignites sovereignty concerns.

U.S. Treasury Secretary Scott Bessent (center) and Federal Reserve Chairman Jerome Powell (center right) flank OECD Secretary-General Mathias Cormann in a family photo at the meeting of G7 finance ministers and central bankers in Banff, Canada, on May 21, 2025.
U.S. Treasury Secretary Scott Bessent (center) and Federal Reserve Chairman Jerome Powell (center right) flank OECD Secretary-General Mathias Cormann in a family photo at the meeting of G7 finance ministers and central bankers in Banff, Canada, on May 21, 2025. © Getty Images
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In a nutshell

  • The U.S. exit undermines the OECD’s global tax goals and credibility
  • Geopolitical tensions are disrupting international tax alignment
  • Europe is pushing forward, but global tax fragmentation is likely
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The decision by the administration of United States President Donald Trump to formally withdraw the U.S. from the Organisation for Economic Co-operation and Development’s (OECD) global tax agreement marks a turning point in international tax coordination. The move, however, is not a surprise. Congressional Republicans and President Trump have never supported the OECD’s Inclusive Framework. They viewed a global minimum tax of 15 percent on entities with revenues of at least 750 million euros annually as European-led overreach that undermines U.S. sovereignty. Nevertheless, the American withdrawal will have far-reaching implications, adding new uncertainty to how multinational corporations are taxed and raising long overdue questions about the future of international tax cooperation.

While the U.S. exit from the OECD global tax deal garnered headlines, it has been overshadowed by the administration’s sweeping revival of tariffs as a tool of economic warfare. In a world where nationalism is regaining popularity, the technicalities of global tax governance may not be a priority, but they matter immensely to the rules of the global economy.

How the global tax was supposed to work

The OECD’s two-pillar framework was originally designed as a response to the perceived challenges of fairly taxing multinational companies in the digital age. Initially launched under the Base Erosion and Profit Shifting (BEPS) project in 2013, the idea gained traction as governments around the world grew frustrated with tech giants earning income from digital services accessed in one territory and then shifting profits to other low-tax jurisdictions.

Pillar 1 of the framework proposes reallocating the right to tax hundreds of billions of dollars in multinational corporate profits from jurisdictions where the companies are formally based to the countries where their customers are actually located, even if the companies do not have physical presence in those states. The Pillar 1 multilateral treaty is intended to replace the various digital services taxes (DSTs) that have proliferated since 2018 – though it will likely not succeed in this goal.

Pillar 2 sets a global minimum effective tax rate of 15 percent on applicable multinationals, using a combination of complicated top-up taxes and extraterritorial enforcement rules to keep countries from competing on tax rates for global capital. The rules have the unintended consequence of moving competition for foreign investment from tax rate cuts to direct subsidies and refundable tax credits.

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Facts & figures

Timeline of the OECD global minimum tax plan

Timeline of the OECD global minimum tax plan
Multinational companies, especially digital services, have avoided taxation in their home countries by pushing activities abroad to low- or no-tax jurisdictions. The G20 asked the OECD to address this issue by creating an action plan to address tax-base erosion and profit shifting. © GIS

Under the administration of former President Joe Biden, the U.S. was a key architect of both pillars, working in coordination with the higher-tax European countries. But implementation was messy. Pillar 1 negotiations stalled as disputes over revenue allocation thresholds, scope and the treatment of digital services taxes proved hard to resolve. Frustrated by the slow pace of talks, more than a dozen countries, mostly in Europe and Asia, enacted unilateral DSTs targeting large U.S.-based firms like Amazon, Google and Meta.

Initially, Pillar 2 saw more success, particularly in Europe. The European Union adopted a directive mandating that all 27 member states implement the global minimum tax, and other OECD countries, including Japan, South Korea and Australia followed suit. However, outside of this relatively narrow coalition, support has been uneven. Major developing countries have been skeptical, China and India remain on the sidelines, and the U.S. has now made the inevitable clear: There is no viable political path for implementing Pillar 2 in the world’s largest economy.

In one of his initial executive orders on his first day back in the Oval Office, President Trump instructed government officials to “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.” A second order on “America First Trade Policy” also directs the Treasury Department to investigate discriminatory foreign tax regimes, invoking retaliatory action under Section 891 of the U.S. Internal Revenue Code – a never-used provision that could double taxes on citizens of countries targeting American firms.

A problem of sovereignty, scope and focus

From the beginning, lawmakers outside the European policy bubble were uneasy with the plan’s heavy-handed centralization of taxing powers through opaque and unaccountable mechanisms. Pillar 2’s enforcement rules, particularly the Under-Taxed Profits Rule (UTPR), pose a direct challenge to national tax sovereignty. Pillar 1’s ambition to reallocate taxing rights without regard to the physical presence of a service provider is rooted in the same intrusive philosophy.

In the U.S., bipartisan concerns about the UTPR quickly hardened into opposition. Under this rule, foreign governments can impose top-up taxes on income earned in the U.S. if they believe the Americans are not taxing their own companies at the OECD’s determined 15 percent. This places U.S. tax policy, including congressionally enacted incentives like the research and development tax credit, under de facto international review. If those credits lower a company’s effective tax rate below the global threshold, it could still end up paying tax as if the domestic credits do not exist – the higher tax just gets paid to a foreign government instead of the U.S. Treasury.

Rather than building trust and coherence, the OECD has layered a brittle, enforcement-heavy system atop incompatible national regimes. 

These concerns of Washington are not merely theoretical − U.S. companies are, in fact, the primary target. One estimate finds that nearly 40 percent of all income subject to Pillar 2 rules is earned by U.S. multinationals, roughly equal to the combined share of the next 10 countries. Since Mr. Trump’s executive order, Republican tax writers in the U.S. House of Representatives passed legislation to impose retaliatory taxes on individuals and businesses of nations that adopt digital taxes or apply rules on under-taxed profits to U.S. companies. The legislation is pending in the Senate.

While Washington’s position is clear in principle, its practical impact is more muddled. The Trump administration’s threats of retaliation risk being swept into the maelstrom of today’s U.S. trade policy dynamics. In a noisy environment of economic nationalism, where tariffs are increasingly used as bargaining chips across sectors, the OECD’s tax overreach may become just one of many competing grievances. That is a real risk for policymakers who want to send a clear signal about defending tax sovereignty. Even in calmer waters, retaliatory actions often result in higher costs for both parties and fail to resolve the underlying dispute.

GIS Centralization dossier

But the OECD is largely reaping what it has sown. The Inclusive Framework abandoned a decades-old international consensus based on physical presence and value creation in favor of a half-built architecture with limited buy-in and constantly evolving definitions. The project has never been just about leveling the playing field. It is about increasing effective business taxes globally by coordinating standards from the top down.

Rather than building trust and coherence, the OECD has layered a brittle, enforcement-heavy system atop incompatible national regimes. The result is exactly what critics predicted: a mounting backlash, fragmented implementation and threats of trade and tax retaliation.

What this means for the rest of the world

The OECD’s vision for a global tax regime is deeply uncertain. As the U.S. and other countries back away, the EU is left with its consensus directive on Pillar 2, which requires member states to implement the rules. In 2025, only six of the 30 countries with active rules on under-taxed profits are outside the bloc. The paths forward are numerous and uncertain as countries wait to see how the Trump administration and Congress engage with the stalled OECD process.

Read more by tax policy expert Adam Michel

Pillar 1 has few viable trajectories, beyond any portions of the Amount B transfer pricing rules – a simplification of the “arm’s length principle” to baseline marketing and distribution activities − that countries can adopt unilaterally. For the most part, countries with an interest in digital services taxes have already implemented them. Additional DST proliferation will likely come, but will be moderated by aggressive U.S. retaliation.

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Scenarios

Most likely: The global tax regime gets watered down and many opt out

The U.S. remains nominally engaged with the OECD Inclusive Framework but does not implement Pillar 2. The longstanding design flaws and geopolitical tensions that have plagued the project since its inception remain unresolved.

Given the unanimity requirement of the EU directive, a full repeal is unlikely, but a practical retreat is inevitable. Over time, Pillar 2 is functionally re-scoped as a European coordination mechanism for taxing foreign multinationals. U.S. firms are either explicitly exempted or shielded via permanent safe harbors. Other countries gradually abandon the Under-Taxed Profits Rules and begin reforming or repealing their domestic top-up tax regimes to reduce uncertainty and compliance burdens.

Somewhat likely: Broader implementation of the global tax, but with caveats

Continued negotiations between the U.S., OECD and EU produce meaningful concessions. The revised framework accepts key U.S. design elements, such as nonrefundable tax credits, and formally recognizes Global Intangible Low-Taxed Income (GILTI), a tax applied to the revenue of non-U.S. companies or foreign corporations that are controlled by American corporations and citizens, as equivalent to an income inclusion rule.

To facilitate a compromise, the EU could also extend or codify the transitional safe harbor for American companies and may scale back or eliminate rules on under-taxed profits. These adjustments should ease Washington’s concerns over discriminatory treatment and lost revenue, allowing for accommodation, but not full implementation, of Pillar 2 by the U.S.

Unlikely: The U.S., EU and world adopt the full global tax regime

The U.S. reverses course and fully embraces Pillar 2, including formal legislative adoption as part of a broader tax reconciliation bill. Congress rewrites GILTI to comply with OECD rules, accepts country-by-country blending and agrees to apply UTPR-style enforcement. This capitulation, driven by domestic political incentives to raise revenue on America’s biggest firms or narrow revenue needs in the budget process, cedes meaningful tax sovereignty to Europe.

This exceedingly unlikely path would mark a dramatic shift in posture and likely lead to further uncertainty in international tax policy, inviting additional rounds of tax harmonization and agitation among developing countries for further expansions.

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