G7 Endorses 'Side-by-Side' Global Tax Framework, Exempts US and UK Firms from Top-Up Levies
The new structure recognises existing US tax legislation, allowing American firms to be taxed only under domestic rules—for both local and foreign income—thus avoiding the OECD’s Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR).
The G7 statement, issued under Canada’s rotating presidency, said the new system aims to provide “greater stability and certainty in the international tax system moving forward.”
Fallout from Trump’s Executive Order
Earlier this year, President Trump withdrew the United States from the 2021 OECD global tax accord, citing concerns over sovereignty and domestic competitiveness. That deal, endorsed by nearly 140 countries, was designed to ensure that large multinational companies pay a minimum 15 per cent tax globally, regardless of where profits are booked.
Trump’s withdrawal and accompanying threats of trade retaliation against countries implementing top-up taxes on US firms had raised alarm among global investors and regulators, prompting urgent diplomatic negotiations within the G7.
Market and Diplomatic Response
The US Treasury, in a post on X (formerly Twitter), called the new side-by-side model a way to “preserve important gains made by jurisdictions inside the Inclusive Framework” and confirmed its intention to work constructively with the OECD to refine the model.
The OECD must now determine how to integrate the G7 carve-outs into its broader global tax framework, particularly how other jurisdictions will treat US and UK firms under the revised structure.
G7 leaders reaffirmed that any final model must be “acceptable and implementable to all,” indicating ongoing challenges in balancing domestic autonomy with multilateral compliance.
What This Means for Global Tax Reform
- For US and UK multinationals: They escape punitive top-up taxes in other countries and will instead be subject to domestic minimum tax laws.
While the agreement signals progress, it remains unclear how non-G7 countries—especially in the EU, Asia and Latin America—will respond to the exemptions for US and UK corporations. There are also concerns about how digital economy taxation and other profit-shifting loopholes will be addressed under the revised regime.