An OECD agreement imposing a global minimum tax rate on large multinational companies will have a stabilizing effect on U.S. corporations' tax positions, but does not necessarily reduce short-term calculation complexity or compliance risks, KPMG LLP tax experts said Tuesday.
Under pressure from the Trump administration, 147 countries last week agreed on a "side-by-side" agreement, creating safe harbors exempting large U.S. companies from certain requirements of an Organization for Economic Cooperation and Development framework known as Pillar 2, a package of rules establishing a worldwide 15% minimum tax for multinational corporations.
The tax regime, favored by former President Joe Biden’s administration, aimed to shut down tax havens and curtail international tax avoidance. It took lawmakers across the globe years to hammer out. The Trump administration has opposed Pillar 2, claiming already enacted U.S. corporate tax laws create their own robust minimum tax regime for U.S. companies, CFO Dive previously reported. The U.S. is a founding member of the OECD, an international organization comprised of 38 countries which aims to advance global economic standards.
Choppy period
Taxpayers with no foreign presence or less than €750 million (approximately $873 million) in consolidated revenues are not subject to Pillar 2 requirements, and the Jan. 5 agreement exempts qualified U.S. companies from Pillar 2 income inclusion rules and undertaxed profits rules.
However, it leaves in place a qualified domestic minimum top-up tax, which allows non-U.S. countries to impose a minimum 15% tax on U.S. multinationals on a country-by-country basis. Those companies could benefit from the top-up tax due to foreign tax credits. Tellingly, the Trump administration didn't oppose the qualified domestic minimum top-up tax component of Pillar 2.
The KPMG practitioners, participating in a Jan. 13 webcast held by the Big Four accounting and consulting firm, forecast U.S. companies will generally benefit from the OECD rules over the longer term.
"I think ultimately, when we look forward into 2027 and 2028, the world will become much easier, but for now we're in a slightly choppy period in terms of what people need to do," KPMG managing director Alistair Pepper said.
In a separate Jan. 13 webcast, OECD’s Center for Tax Policy and Administration Director Manal Corwin lauded the deal, saying it demonstrated a globally coordinated effort to stop multinationals from unreasonable tax avoidance.
"What last week has demonstrated is a continued global broad-based commitment by countries about the importance of cooperation in tax, the importance of delivering certainty, as well as a commitment to minimum taxation as a policy tool to address distortions but also to protect tax bases," she said.
Need for speed
Because tax jurisdictions haven't yet enacted into domestic law the side-by-side agreement, U.S. companies will still likely have to complete all Pillar 2 calculations for this year despite the exemptions, KPMG principal Marcus Heyland said.
The exemptions are "not enacted yet, it's just in an OECD agreement, and in general we expect that at least public companies will still be required to provision" for the full suite of Pillar 2 rules "until countries actually get around to enacting the side-by-side safe harbors," Heyland said.
"My expectation is there will be a handful of jurisdictions that are able to enact side by side in the immediate term, let's say within the next three months,” Heyland said. “But I think there are also going to be a large number of jurisdictions that take between six and 12 months to enact.”
The United Kingdom, for instance, has publicly stated it will adopt the exemptions, but it may take up to 15 months for that country to enact the changes through its budget process, Pepper said.
Others agreed. "The OECD administrative guidance that was released is generally not considered law. Most jurisdictions will need to adopt the guidance into their local legislation," PwC partner Keith Rymer said in a Jan. 14 PwC webcast.
"The overall key theme for companies is that they'll all need to closely monitor legislative developments across the globe, not just in 2026 but potentially later years as countries adopt the OECD administrative guidance into their local legislation," Rymer said.
European Union doctrine and U.S. generally accepted accounting principles regarding effective dates of international agreements may be able to speed up the process, Heyland said.
Not Retroactive
Some companies will still be subject to all Pillar 2 rules for tax years 2024 and 2025 because the safe harbors are not retroactive. But the practitioners agreed the OECD agreement will likely simplify U.S. taxpayer compliance efforts for tax years beginning Jan. 1, 2026, and beyond.
Companies will also be able to simplify their information returns by tailoring them for specific tax jurisdictions. The agreement's simplification measures "I think are good news for everybody," and the OECD has further stated it will continue work to simplify global tax rules, KPMG principal Michael Plowgian said.
Future work is also needed to coordinate the side-by-side agreement with other OECD tax rules, including an intercompany financing rule and a transfer pricing adjustment rule, Plowgian said.
The Jan. 5 OECD agreement is written in such a way that the U.S. is the only country qualifying for the safe harbors, Pepper said.
