Treasury Secures Agreement to Exempt U.S.-Headquartered Companies from Biden Global Tax Plan

OECD Pillar Two is a set of "global minimum tax" rules (the GloBE rules) developed in the OECD/G20 Inclusive Framework to ensure large multinational groups (generally those with €750 million+ in global revenue) pay at least a 15% effective corporate tax rate in each country where they operate. It works mainly through:

• an Income Inclusion Rule (IIR) that lets the parent’s country charge a “top‑up” tax if a subsidiary’s effective tax rate in a country is below 15%; and
• an Undertaxed Profits Rule (UTPR) that lets other countries deny deductions or impose tax if low‑tax income isn’t fully picked up by the IIR.

Before this U.S. deal, Pillar Two would have allowed other countries to collect top‑up tax on the low‑taxed foreign profits of U.S.-headquartered multinationals if U.S. rules (like GILTI) produced an effective rate below 15% on a country‑by‑country basis. That is why U.S. firms faced the risk of extra foreign taxes under Pillar Two.

The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) is a group of countries and jurisdictions that jointly design and implement international tax standards, including the two‑pillar project on digitalisation and the global minimum tax. It was created so OECD and G20 countries plus many others could work “on an equal footing” on BEPS issues.

By 2021, 136 jurisdictions had agreed to the two‑pillar plan; by 2024–25, the Inclusive Framework had about 140–145 members participating in BEPS work. These members include virtually all OECD and G20 states plus many developing countries (for example, EU states, the U.K., Japan, India, Brazil, South Africa, etc.). When the Treasury release refers to “more than 145 countries in the OECD/G20 Inclusive Framework,” it is referring to this full membership of jurisdictions that endorsed the Pillar Two approach.

OECD agreements like Pillar Two are not self‑executing treaties; they are “soft law.” They have effect only if and when each country enacts them into its own domestic law or amends tax treaties.

The Inclusive Framework specifically treats the Pillar Two rules as a “common approach”: members are not required to adopt the GloBE rules, but if they do, they agree to implement them consistently and to accept their application by other jurisdictions. That means the U.S. can choose not to adopt Pillar Two in its law, and other countries can, by agreement, design their own implementing laws so that U.S.-headquartered groups are carved out or treated as already subject to sufficient U.S. minimum tax.

The Treasury’s new deal is a political/technical agreement with other Inclusive Framework members on this implementation choice. Its legal force comes from those countries subsequently changing or interpreting their own Pillar Two legislation and OECD guidance to exclude U.S.-parented groups from foreign IIR/UTPR top‑up taxes, while leaving U.S. companies fully subject to U.S. minimum‑tax rules instead.

"U.S. global minimum taxes" refers mainly to existing U.S. tax rules that already act like a minimum tax on U.S. multinationals’ foreign income, especially:

• GILTI (Global Intangible Low‑Taxed Income), introduced in 2017, which imposes a minimum U.S. tax on foreign profits of U.S. corporations; and
• the BEAT and related anti‑base‑erosion rules.

These differ from OECD Pillar Two in important ways:

• Rate and base: GILTI is applied at effective rates below 15% and uses "global averaging" across countries, while Pillar Two requires a 15% minimum calculated separately for each jurisdiction.
• Rule structure: Pillar Two relies on the GloBE rules (IIR, UTPR, and potential domestic minimum top‑up taxes) that other countries can apply to U.S. firms; U.S. rules only apply within the U.S. tax system.

Under the new agreement, other countries accept that U.S.-parented groups will be policed by these U.S. minimum‑tax rules instead of being subject to foreign Pillar Two top‑up taxes on their foreign income.

Under Pillar Two, many traditional tax credits and incentives are treated unfavorably when calculating the 15% effective tax rate. Non‑refundable credits like the existing U.S. R&D credit can lower a company’s book effective tax rate and trigger foreign top‑up tax under Pillar Two, effectively clawing back part of the benefit.

By agreeing that U.S.-headquartered groups will be subject only to U.S. minimum‑tax rules and not to foreign Pillar Two top‑ups, the deal means:

• other countries will not use Pillar Two calculations to treat U.S. R&D credits and similar U.S. incentives as a reason to impose extra tax on U.S. groups; and
• Congress can continue to design and expand non‑refundable incentives (like the R&D credit) without those being neutralized abroad by Pillar Two top‑ups.

Put simply, keeping U.S. firms out of foreign Pillar Two top‑up rules is what “protects the value” of these domestic credits in practice.

According to Treasury, the U.S. has reached a “side‑by‑side” agreement with more than 145 Inclusive Framework members that U.S.-headquartered groups will remain subject only to U.S. global minimum taxes and be exempt from Pillar Two. In practice, this requires:

• OECD guidance that recognizes a carve‑out for U.S.-parented groups from foreign Income Inclusion Rules and Undertaxed Profits Rules; and
• each implementing country aligning its domestic Pillar Two legislation or administrative practice with that guidance so that its tax authority does not apply top‑up tax to U.S.-parented multinationals.

However, this is not self‑executing: it depends on countries actually amending or interpreting their laws accordingly. The Tax Foundation notes that a similar G7 “side‑by‑side” approach will only be enforceable once it is translated into OECD guidance and national legislation, so ongoing diplomatic and technical work is needed to ensure consistent non‑application of Pillar Two to U.S. groups.

The Treasury statement is dated January 5, 2026 and describes the agreement as already reached, implying the political commitment is immediate. But the exemption’s real-world effect begins only as foreign governments implement it in their Pillar Two laws and as the OECD issues corresponding guidance.

Implementation and monitoring steps, based on Treasury’s description and the nature of the Inclusive Framework, are:

• Ongoing engagement with foreign governments to “ensure full implementation of the agreement” and to align their Pillar Two rules with the U.S. carve‑out.
• Work within the OECD/G20 Inclusive Framework to embed the side‑by‑side approach in technical guidance on Pillar Two (so tax authorities apply it consistently).
• Continued monitoring of other countries’ legislation and, where needed, bilateral or multilateral discussions or pressure if a country moves to apply Pillar Two top‑ups to U.S.-parented groups contrary to the agreement.

The Treasury release does not give a specific statutory effective date; it frames the exemption as an agreed approach that will take effect as partner countries and the OECD implement it.