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Written by Pieter Baert.

G7 statement

On 28 June 2025, the G7 issued a statement expressing a ‘shared understanding’ that the domestic and foreign profits of US-parented multinational groups would be excluded from the scope of Pillar Two, the OECD-G20 global minimum corporate tax framework. Instead, the G7 signalled readiness to work on a ‘side-by-side’ approach in which the US GILTI regime, its current minimum tax on foreign earnings of US parented groups – would co-exist with Pillar Two. The statement allowed for the withdrawal of proposed US retaliatory measures (‘section 899’) that had been included in the One Big Beautiful Bill Act (OBBBA).

Reminder: Pillar Two applies a 15 % global minimum effective tax rate using a hierarchical rule order to ensure large multinational enterprises are taxed appropriately in each jurisdiction:

• 1. The Qualified Domestic Minimum Top-Up Tax (QDMTT) – Gives the local jurisdiction first claim to top up low-taxed domestic profits.
• 2. The Income Inclusion Rule (IIR) – The ultimate parent’s jurisdiction imposes a top-up tax on the local parent entity to make up for any remaining low-taxed profits of foreign entities.
• 3. The Undertaxed Profits Rule (UTPR) – If the IIR is not applied by the ultimate parent’s jurisdiction, the UTPR steps in as a backstop, with lower-tier jurisdictions imposing top-up taxes on local entities to make up for any remaining low-taxed profits in the parent jurisdiction or any other third jurisdiction.

Council Directive (EU) 2022/2523 introduced Pillar Two’s minimum tax rules in the EU.

Given the broad nature of the G7 statement, which speaks of ‘accepted principles’, it is difficult to draw definitive conclusions at this stage. Based on its wording, a side-by-side approach – if endorsed by the OECD Inclusive Framework – could imply that non-US jurisdictions would not apply the UTPR to local entities of US-parented groups in respect of low-taxed profits arising in the US or in another jurisdiction that does not apply the QDMTT or the IIR. However, the statement does not explicitly clarify the specific terms of the exemption. For instance, it does not address how US intermediary parent entities within non-US multinational groups would be treated for minimum tax purposes, the potential creditability of the GILTI tax in relation to a jurisdiction’s QDMTT, or how the side-by-side approach would be defined in legislation.

NCTI and Pillar Two

As Pillar Two and the US’ GILTI (now called ‘NCTI’ under the OBBBA) operate on different principles and design features, it is difficult to assess to what extent the side-by-side approach could raise concerns about a level playing field or lead to base erosion and profit shifting among the multinational companies subject to each regime. Potential competitive disadvantages arise not only from differences in direct tax liabilities but also from the variations in the administrative and legal complexity of the respective regimes.

The OBBBA, signed into law in July 2025, introduced several adjustments allowing NCTI to more accurately reflect the real outcomes of Pillar Two. It increased the effective tax rate to 14 % (up from 13.125 %) and removed the carve-out for the Qualified Business Asset Investment (QBAI), thereby broadening the taxable base.

However, a key difference between the two systems remains: the ‘blending’ of income. Pillar Two requires corporate groups to meet a minimum level of tax in each jurisdiction where they operate (‘jurisdictional blending’), while the US’ NCTI allows income and foreign taxes to be blended across all foreign countries (‘global blending’). This way, low-taxed income can be offset with high-taxed income elsewhere and profits in some jurisdictions can be reduced by losses in others.

Table 1 – Key comparisons between OECD G20 Pillar Two and US NCTI

 OECD-G20 – Pillar TwoUS – NCTITax rate15 %14 %Tax baseBased on accounting incomeBased on US taxable incomeBlendingJurisdictional blendingGlobal blendingCarve-outsBased on payroll and tangible assets (SBIE)Payroll or tangible assets do not qualify for a carve-out

Note: The effective 14 % floor of NCTI results from the interaction of the 21 % US statutory corporate tax rate, the 60% inclusion of NCTI taxable income and the 90 % foreign tax credit limitation ((21 % * 60 %)/90 % = 14 %).

Additionally, the OBBA introduced broader corporate tax changes, such as permanent expensing for domestic R&D investments and a higher interest deductibility cap, to enhance US competitiveness.

Pillar One

The G7’s statement noted that the delivery of the side-by-side system ‘will facilitate further progress to stabilize the international tax system, including a constructive dialogue on the taxation of the digital economy’, referencing the negotiations on Pillar One. During the September 2025 plenary session, in response to questions from Members of the European Parliament on Pillar One and the prospects for a European digital services tax (DST), the European Commission acknowledged that Pillar One discussions were ‘on hold’ but could resume once a Pillar Two solution is reached. To give the OECD-led process space and time to deliver, the Commission stated that it does not intend to table a new proposal for a DST at this stage.

Several countries have already implemented or announced digital services taxes (DSTs), with revenues steadily increasing over time, showcasing the continuous growth of the digital economy. In 2023, Spain, Italy and France collectively generated €1.4 billion from their DSTs. However, estimating the revenue potential of an EU-wide DST would heavily depend on key design parameters, such as the definition of in-scope activities (the types of digital services or business activities that would fall under the tax), the applicable tax rate, and the revenue thresholds.

Table 2 – Revenue of DSTs, € million, 2019-2023

Revenue (€ million)20192020202120222023Spain  €166€295€323France€277€375€474€621€668Italy €233€303€394€434

Data source: Data on Taxation Trends – European Commission. All three countries apply a 3 % DST on turnover from online advertising, user data sales and digital platforms, with a €750 million global revenue threshold and varying domestic thresholds: €3 million (Spain), €25 million (France), and €5.5 million (Italy; lowered to €0 in 2025).

Read this ‘at a glance’ note on ‘Side by side? The future of Pillar Two minimum corporate tax rules‘ in the Think Tank pages of the European Parliament.

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