By Leigh Thomas
PARIS, Jan 6 (Reuters) - More than 145 countries have agreed to update a landmark global tax deal, carving out exemptions for U.S. multinationals after Washington pushed back against rules designed to ensure big corporations pay at least 15% tax worldwide.
The U.S. exemptions could reshape how countries enforce the agreement and affect global tax revenues as the impact becomes clearer.
WHY A GLOBAL MINIMUM TAX?
Major economies have long sought to stop multinationals from shifting taxable
profits to low-tax jurisdictions, regardless of where their sales occur.
Increasingly, income from intangible sources such as drug patents, software and royalties has migrated to these jurisdictions, allowing companies to avoid higher taxes in their home countries.
The original deal was expected to generate about $150 billion in new annual revenue, with taxing rights on over $125 billion of profit shifted to countries where multinationals earn income.
The Organisation for Economic Cooperation and Development has since revised its extra revenue estimate to $192 billion, but has not yet factored in the U.S. exemptions.
WHAT WAS THE 2021 GLOBAL DEAL?
Governments agreed in 2021 to set a 15% minimum tax on big multinationals' overseas profits - the first major overhaul of cross-border tax rules in a generation.
Countries could still set their own corporate tax rates, but if companies paid less than 15% in a particular jurisdiction, other governments could "top up" their taxes to the minimum, removing the incentive to shift profits.
WHY DID WASHINGTON OBJECT?
While Joe Biden's administration backed the 2021 deal, Republican lawmakers argued it unfairly targeted U.S. multinationals and hurt competitiveness.
Implementation was expected to be complicated from the start, partly because it left unresolved how existing U.S. minimum tax rules, introduced by Donald Trump's first administration, would align with global standards.
Trump threw the deal's future into doubt after taking office again in January 2025, declaring in an executive order that it would have "no force or effect" for the U.S. His administration threatened retaliatory taxes against countries imposing levies on U.S. firms under the 2021 agreement.
Washington dropped the threat after G7 countries brokered a compromise in June exempting U.S. companies from key provisions. The global deal was updated on Monday to reflect those carve outs.
WHERE DOES THE GLOBAL MINIMUM TAX DEAL STAND?
The revised agreement effectively exempts U.S.-parented multinationals from top-up tax rules, recognising the U.S.'s minimum tax regime on foreign profits of 12.6%. It also simplifies compliance and offers exemptions for certain tax incentives.
The U.S. Treasury hailed the update as a win for U.S. tax sovereignty, while the National Association of Manufacturers said it would ensure U.S. firms compete on a level playing field.
Tax justice campaigners, including Gabriel Zucman of the EU Tax Observatory, criticised the changes as "pathetic" and a retreat from the principle of a common minimum tax.
As of October, more than 65 countries had begun implementing the global tax deal, the OECD said. Work continues on further simplification and easing compliance burdens.
(Reporting by Leigh Thomas. Editing by Mark John and Mark Potter)
