Despite US exemptions, the show goes on for a global minimum corporate tax

For over forty years, worldwide statutory corporate tax rates have been falling. At the same time, the number of corporate tax havens has risen sharply, costing governments around the world hundreds of billions of dollars in lost tax revenue.

This is why, since 2016, there has been a global effort to establish a minimum corporate tax—an internationally agreed-upon minimum rate on corporate income. Progress has not been steady, and over the past months, the continued fraying of long-standing alliances and economic relationships—or “rupture,” as Canada’s Prime Minister Mark Carney recently described it in Davos—has put global cooperation under strain.

Yet the initiative has not stalled. On the contrary, despite a series of technical and political obstacles, it has continued to advance.

The years-long push for a new corporate tax regime

In 2021, the Biden administration helped broker a global minimum corporate tax deal as part of the Base Erosion and Profit Shifting (BEPS) initiative, launched by the Organisation for Economic Co-operation and Development (OECD). Since then, over sixty-five countries have begun implementing the framework. Upon returning to office for his second term, however, US President Donald Trump argued that this deal did not apply to the United States, and his administration threatened retaliatory taxes against countries that taxed US companies under the new parameters.

On January 5, under pressure from the Trump administration, 146 countries joined the United States in amending the 2021 agreement. As a result, the global minimum corporate tax framework will now continue, but with one notable change: US multinational corporations (MNCs) will be exempt from the agreement’s country-by-country undertaxed profits rule (UTPR).

The UTPR was meant to work as follows: if a company’s profits are taxed below the agreement’s minimum 15 percent threshold in a country of operation, a top-up tax can be applied by the company’s home country—or by other jurisdictions where the company operates if its home country does not act—to reach the 15 percent rate. The Trump administration viewed this mechanism as an infringement on US sovereignty and unfair, because the United States already imposes a minimum corporate tax on foreign income.

Under Trump, the US has reshaped but not derailed global corporate tax reform

By exempting US MNCs, the update will result in a less effective global minimum corporate tax than the original 2021 agreement. US MNCs must still pay a 14 percent tax rate on foreign profits under the US Net CFC Tested Income (NCTI) rule; however, the update matters more than the one-percentage-point difference in rates. The OECD agreement calculates its global minimum corporate tax on a country-by-country basis, while the NCTI uses a worldwide average, allowing MNCs to blend profits from low-tax and high-tax countries to stay below the 14 percent minimum.

With this change, the amended OECD deal is clearly not as comprehensive or consistent as it could be, but its passage remains a meaningful step forward for several reasons.

First, this outcome preserves a multilateral framework more robust than any previous effort. Major economies around the world and most low-tax countries have implemented it. While not impossible, it will now be harder for MNCs to lower their tax burdens through global profit shifting. This framework is no longer just theoretical; it is already impacting MNC‘s balance sheets. Without a deal—and with US retaliatory taxes derailing the initiative—the global community would be back at square one in a race to the bottom, with no floor for corporate taxation.  

Second, for this type of technical and complex policy, the unknowns are vast. Tangible experience and stakeholder engagement are crucial to getting the policy right. By moving forward, public and private stakeholders will become familiar with the system in practice. Eventually, it will become the default. Policymakers will gain hands-on experience in coordinating and collaborating on the system’s features. Without the compromise deal, political and policy focus in this area could stall, and the next push to reform the global corporate tax regime would face the same uncertainty.

Third, implementing an unprecedented global policy apparatus was always going to be difficult, but once in place, it is far easier to adjust rates or make technical refinements. Future policy lessons, political dynamics, and technological advancements will inevitably drive changes in how the OECD agreement operates. Optimizing outcomes is much easier with a framework in place than starting from scratch.

Progress over perfection

Exempting large and profitable US MNCs from the UTPR is not ideal, but incentives for participating countries to stay aligned remain strong. By instituting domestic minimum top-up taxes, they can still collect more revenue from US MNCs operating in their jurisdiction and confidently avoid being undercut by significantly lower rates elsewhere. At the same time, the United States clearly shares the widespread interest in avoiding a race to the bottom on corporate taxation, which is part of the reason why the first Trump administration enacted the NCTI—then known as the Global Intangible Low-Taxed Income rule—and other international tax reforms.

In many areas of international economic policy, global collaboration is far more challenging than in recent decades, and in some cases it is breaking down. The global minimum corporate tax, however, demonstrates that progress is still possible. The broader lesson for policymakers is this: don’t let perfect be the enemy of good. Let momentum build, focus on substantive technical details, and find common incentives.

It will still be a long journey for the global minimum corporate tax to reach a stable and effective equilibrium, but with this compromise, there is now an open road ahead.

Jeff Goldstein is a contributor to the Atlantic Council’s GeoEconomics Center. During the Biden administration he served as the senior advisor for investment activities and director of strategy implementation in the CHIPS Program Office at the US Department of Commerce. Earlier in his career, he was the deputy chief of staff and special assistant to the chairman of the White House Council of Economic Advisers in the Obama administration. Views and opinions expressed are strictly his own.

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