Page Contents
Key Contacts
Related Services
June 2021 saw the G7 finance ministers at that time agree in principle on a global minimum tax for large multinational groups (MNEs). That led to further political agreement among more than 140 countries and the adoption and implementation of Pillar 2 rules by many, including Ireland.
Fast forward almost exactly four years to June 2025 and we see the current G7 finance ministers agreeing to exclude US MNEs from certain aspects of the Pillar 2 global minimum tax rules.
This turnabout was spurred by the US threat of retaliatory taxes on countries applying “unfair” taxes on US MNEs, including the UTPR (Undertaxed Profits Rule) under the Pillar 2 measures. Those retaliatory US taxes were contained in a new provision for the US tax code, s.899, which was included in the One Big Beautiful Bill Act as it progressed through the US legislature.
Under the G7 agreement s.899 is to be dropped. This is to be welcomed by Irish groups in receipt of US source income or with US subsidiaries, which could have been affected by the proposed retaliatory taxes.
Details concerning the G7 agreement are limited. All we have at the moment are social media posts from the US Treasury Secretary and a brief G7 statement. Those indicate a “side-by-side” solution whereby US parented groups would be exempt from the Pillar 2 Income Inclusion Rule (IIR) and UTPR in recognition of the existing US minimum tax rules to which they are subject (the GILTI rules). Pillar 2 domestic top up taxes (such as that implemented by Ireland) are not expressly dealt with in the statement, other than referring to their success. It seems that they will not be affected by the agreement struck.
We await to see how this is to be legally implemented. There are different ways it could be. A “side-by-side” system suggests amendment of the Pillar 2 rules so as to respect in some manner the US as effectively having a qualifying IIR for Pillar 2 purposes, with Pillar 2 UTPR then not applying for US headed MNEs.
Pillar 2 in the EU is provided for under EU directive. Pillar 2 changes should require a new EU directive, which requires unanimity amongst EU Member States. That opens up the possibility of the issue becoming something of a political football. We saw that with the original EU Pillar 2 Directive.
Where to now for the BEPS 2.0 project? If the G7 agreement is implemented, we should see changes to Pillar 2 rules providing for different treatment for US MNEs. Pillar 1 appears to be dead. It would have provided for measures taxing profits in market jurisdictions (and would likely have adversely affected the Irish exchequer tax take). Not exactly the levelling of the playing pitch that the project aimed for.
US headquartered MNEs may now have certain competitive advantages when compared to other jurisdictions (such as EU Member States, the UK and China) which cannot benefit from the proposed preferential treatment.
The majority of the 140-odd countries that agreed politically to Pillar 2 have yet to implement Pillar 2 rules. While the G7 statement references stability, arguably the agreement reached has the reverse effect in certain regards. It would not be surprising to see many countries (such as China) reconsider their approach to Pillar 2, and to delay, if not drop, implementation plans. There was already some discontent among developing nations regarding the OECD-led Pillar 2 project.
Indications of the fraying of international consensus can also be seen with the announcement in early June by Japan that it will not implement Pillar 1. What’s more, it appears that Japan will not accept Amount B where it is used by a counterpart jurisdiction. This is contrary to the OECD approach that Amount B outcomes be respected when applied by certain, so-called “covered”, jurisdictions (which are generally low or middle-income countries).
While Ireland has no proposals concerning a digital services tax (DST), they were called out in the draft s.899 as an “unfair” tax. The G7 statement refers to future “constructive dialogue on the taxation of the digital economy”, a nod to the fact that this issue remains unresolved. Surely it will need to be addressed in some, as yet unknown, manner, perhaps through tariff discussions. A recent social media post by the US President cited the Canadian DST as a reason for calling off tariff talks with Canada.
Pillar 2 matters presently move on apace, so watch the (social media) space.
For more information in relation to this topic please contact the ALG Tax team or your usual ALG contact.
Date published: 4 July 2025
