The Trump administration pulled the U.S. out of a global minimum business tax agreement earlier this summer when it struck a deal with the Group of Seven (G7) large economies that allowed the U.S. to maintain its corporate minimum tax.
The result was a “side-by-side” system of minimum corporate taxation that preserved the general form of an agreement but let countries cater it to their preferences.
The administration is now working to make minimum taxes more favorable to corporations through the regulatory process after leaving Democrats’ minimum tax largely in place in their One Big Beautiful Bill Act, potentially further eroding the already weakened global tax accord.
Proposed IRS regulations for corporate minimum taxes released in July “appear to be more favorable or simpler than last year’s proposed regulations in many situations,” Monisha Santamaria, a pass-through tax specialist with accountancy KPMG, and others wrote in an analysis earlier this month.
“Affected taxpayers (such as applicable corporations that are partners in partnerships) appear to be celebrating the optionality provided for in the notice,” they said.
Democrats blasted the new regulations in a letter to Treasury Secretary Scott Bessent on Monday. After the unexpected departure of new IRS Commissioner Billy Long, whom the Senate confirmed, Bessent is serving as acting head of the agency.
They accused Trump’s IRS of either postponing or abandoning the corporate alternative minimum taxes (CAMT) that enable the international corporate tax arrangement to remain nominally in place.
“These actions indicate that under President Trump, the IRS is at best delaying the full implementation of CAMT to allow the largest corporations to avoid paying taxes, and at worst abandoning its legal responsibility to administer and enforce CAMT altogether,” Sens. Elizabeth Warren (D-Mass.), Angus King (I-Vt.) and others wrote to Bessent.
The new tax rules help corporations by shrinking the tax base. The minimum tax would apply to fewer companies and to less of their income.
Analysts for EY called the new rules “a welcome development for corporations” and described the income reporting standard as “favorable.”
“[It] has additional taxpayer favorable [income] adjustments,” EY accountants wrote about one of the proposed rule changes in June.
The Organization for Economic Cooperation and Development (OECD), a forum of rich countries where the international corporate minimum tax was negotiated, is considering whether U.S. companies are still a party to the agreement.
The OECD circulated a 30-page proposal dated Aug. 13 detailing “how companies could be exempt from the global minimum tax agreement if their ‘profits are already subject to robust taxation,’” Bloomberg Tax reported last month.
While the U.S. has been touting the “side-by-side” arrangement, the legal definition is still being debated at the international level, according to the Bloomberg report.
When the Treasury Department announced its G7 agreement in June that sidestepped the OECD deal, which is known as Pillar 2, the agency appeared to foreshadow the regulatory changes now being advanced by the IRS.
“[The] side-by-side system would be undertaken alongside material simplifications being delivered to the overall Pillar 2 administration and compliance framework,” the Treasury Department said in a statement.
But international tax advocates say the side-by-side arrangement is the U.S. wanting to have it both ways — remaining a party to the agreement while effectively being exempted from it.
“It’s not without precedent,” Alex Cobham, chief executive of the UK-based Tax Justice Network, told The Hill. “The U.S. doesn’t cooperate on automatic information exchange, but for many years managed to have the OECD exclude them from the list of noncooperative jurisdictions.”
Cobham said the U.S. exemption from the global minimum tax is more of a blow to fellow OECD countries than the information-sharing exemption because it will cost countries money, notably those in the European Union.
“This would involve direct, visible revenue losses to EU members,” he added. “The information exchange rejection was a slower process of the U.S. becoming the leading tax haven, without nearly such directly attributable losses to individual countries.”
To make sure the U.S. would not be subject to the OECD’s minimum tax — and specifically its undertaxed profits rule — Republicans included a foreign capital tax in the House-passed version of the bill that scared investors and was dropped when the U.S. and the G7 struck their deal. One congressional tax source told The Hill they were pleased they were able to remove the foreign capital tax, but they were ready to make it a reality.
IRS officials have told The Hill in the past it is usually the U.S. that effectively exports its tax structures abroad through policy adoption by other countries, rather than taking cues from multilateral agreements, which are then harmonized to national laws.
While Republicans appear to be leaving further modification of the U.S. corporate minimum tax to the regulatory level for now, they did provide a specially tailored revision to the law itself to exempt oil and gas companies in the tax and spending bill passed over the summer.
That provision changed the CAMT by allowing “intangible drilling and development costs” into income calculations accepted by the IRS. The law mirrored legislation put forward by Sen. James Lankford (R-Okla.), who said earlier this year he was trying to get the industry some “relief.”
“We need to be able to get some relief to them so they’re not constantly worried about it,” Lankford told CNBC.
If countries lose interest in the OECD as a forum for international agreement on minimum business taxation, it could open up a floodgate of big tech taxes, which were the original motivation for increased tax coordination across international borders.
Big tech platforms operate globally while being mostly headquartered in the U.S., leaving them exempt from traditional forms of consumption taxes. Such tech taxes, often called “digital services taxes,” could resemble the one Canada recently put in place and then yanked as part of trade talks with the U.S.
Tax advocates say the stalling out of the OECD process could spur a rival initiative at the United Nations.
“Trump’s tax grab bolsters the UN convention negotiations,” a brief from the Tax Justice Network argued earlier this year, saying the foreign capital tax initially included in the tax bill would undermine “countries’ tax sovereignty.”
