Since President Trump’s return to office, the United States’ stance on the OECD’s Pillar Two global minimum tax framework has seen some changes. Pillar Two is a framework that requires groups with consolidated annual revenues of more than €750m to pay a minimum 15% tax on its profits in each jurisdiction it operates in. We explore what these changes could mean for Pillar Two in the long run and explain what UK members of US-parented groups should do in the meantime.
Under the Biden administration, there were plans to align the US’s existing “Pillar Two-like” tax rules with the OECD regime. When Trump took office for the second time earlier this year, he immediately withdrew US support for Pillar Two. Since then, this new administration has taken steps in opposition to the regime.
Timeline of key events
So, let’s take a look at what’s happened.
20 January 2025 – Trump takes office. On the same day, he issues a memorandum stating that:
- Any prior commitments to Pillar Two made by the previous administration have no force; and
- The US will review whether any foreign countries have (or are likely to put in place) any tax rules that are extraterritorial or that disproportionately affect US companies and consider how to respond to these.
A few days later, the OECD responds to the above and states that they intend to keep working with the US on Pillar Two implementation.
16 May 2025 – the One Big Beautiful Bill Act (“BBB”) is introduced. The bill includes section 899, a “retaliation tax” penalising countries that impose an unfair or discriminatory foreign tax regime. This includes capturing countries that have implemented an Income Inclusion rule (IIR) and/or an Undertaxed Profits Rule (UTPR) under Pillar Two – as both of these mechanisms would allow top-up taxes to be collected abroad in respect of undertaxed US profits.
28 June 2025 – a joint statement is released by the G7 and the US confirming a “shared understanding” that the US minimum tax rules are functionally equivalent to the OECD’s Pillar Two rules for US parented groups.
US-parented groups are to be fully excluded from the IIR and the UTPR top up taxes in respect of their domestic and foreign profits – provided that the US develops a side-by-side solution, and that it removes the section 899 retaliatory tax from the BBB.
4 July 2025 – the BBB is signed into law; the revenge tax having been removed.
What should UK members of US-parented groups do now?
Under the joint US/G7 statement issued in June, US headquartered groups are exempt from both the IIR and the UTPR.
Many MNE groups will have already carried out Pillar Two impact assessments modelling the effect of the IIR and/or UTPR in respect of undertaxed US profits. A question now is: when will the US side by side solution take effect? Will it apply retrospectively for accounting periods beginning on or after 1 Jan 2024?
Whilst the IIR and the UTPR are extraterritorial top up taxes, the Qualified Domestic Minimum Top-up Tax (QDMTT) is a domestic measure that allows a country to collect top up tax locally ensuring that any additional tax due under Pillar Two stays within the jurisdiction where the income is earned. The statement makes no explicit mention that QDMTT does not apply for US headquartered groups.
The US and G7 statement does however refer to “material simplifications” in Pillar Two administration and compliance. This raises the question: could an exemption from QDMTT also follow for US-parented groups?
While the US and G7 statement marks a significant policy shift, no formal implementation date has been confirmed. Until further legislative or administrative guidance is issued—particularly from the OECD and national governments—groups should continue to monitor developments closely and be ready to comply under existing rules.
That said, given the fluidity of the policy landscape over the past six months, the rules may still change. For UK purposes, the key compliance deadline is 30 June 2026 which means that US headquartered groups have time to temporarily pause their Pillar Two work. This should be done with caution, ensuring that sufficient time remains to meet compliance obligations in the event that no material changes to the rules ultimately occur.
In short, while a pivot in policy remains possible, the current framework should still be treated as operative until confirmed otherwise.
What could happen to Pillar Two as a concept in the long term?
The US’s rejection of Pillar Two may discourage wider uptake of the regime. Certain countries, including, India and China, have remained silent on Pillar Two implementation – potentially wanting to see how the US situation unfolds before stating their positions. The success of Pillar Two as a global framework hinges on commitment by countries across the world; the lack of support from the US could undermine the regime. It is perhaps too early though to predict that Pillar Two will fall away completely. Many countries (notably those in the EU) have already implemented legislation to give effect to Pillar Two. Reversing these rules won’t be an easy process.
For more information on next steps for your group, please contact Mimi Chan
