Global Minimum Tax Implementation

Current Status

Existing Law: Tax Cuts and Jobs Act of 2017 established GILTI (Global Intangible Low-Taxed Income) at 10.5% effective rate with blended calculation across jurisdictions. OECD/G20 Pillar Two Global Minimum Tax Framework adopted by 140+ countries (2021-2024)¹.

Current Authority: Treasury administers international tax policy. IRS enforces GILTI. No US agency has Pillar Two implementation authority.

Existing Limitations: US has not enacted Pillar Two conforming legislation despite 140+ country adoption. GILTI uses blended calculation allowing high-tax countries to offset low-tax havens (e.g., 25% in Germany offsets 0% in Cayman Islands). Effective GILTI rate can fall below 15%. Corporate profit shifting to low-tax jurisdictions estimated at $60-100B annual US revenue loss².

Problem

Specific Harm: Without US Pillar Two adoption, other countries collect top-up taxes on US multinationals' undertaxed foreign profits—revenue that would otherwise flow to US Treasury. EU, UK, Japan, South Korea, Canada have all enacted Pillar Two³. US inaction means foreign treasuries collect taxes on US companies' low-taxed income. Current GILTI blending defeats minimum tax purpose—a company with 25% rate in high-tax countries can shelter profits taxed at 0% elsewhere.

Who is Affected: US Treasury loses $60-100B annually to profit shifting². Domestic-only businesses face competitive disadvantage against multinationals with lower effective rates. Foreign governments collect revenue that could go to US.

Gaps in Current Law: No Pillar Two implementation. GILTI blending defeats minimum tax. No Qualified Domestic Minimum Top-Up Tax (QDMTT) to ensure US collects first. Country-by-country reporting voluntary.

Accountability Failures: Corporate country-by-country reporting voluntary. No independent verification of effective tax rates. IRS lacks resources for international enforcement⁴.

Proposed Reform

Primary Policy Change: Implement OECD Pillar Two global minimum tax (15%) on country-by-country basis, including QDMTT to ensure US collects top-up before foreign jurisdictions. Strengthen GILTI to align with Pillar Two.

New Requirements: Country-by-country minimum tax calculation (no blending). QDMTT on undertaxed US profits. Income Inclusion Rule for undertaxed foreign profits. GloBE Information Returns filed within 15 months of fiscal year end (18 months for first year)⁵. Public country-by-country reporting per OECD BEPS Action 13 template filed with SEC EDGAR within 180 days of fiscal year end⁶. GILTI inclusion rate increased to 100% (from current 50%). Foreign tax credit increased to 100% (from current 80%).

New Prohibitions: GILTI blending prohibited (country-by-country calculation required). Substance exclusions phase down by 0.2 percentage points annually over 10 years per OECD Model Rules⁵.

Enforcement: IRS international enforcement division. Mandatory country-by-country reporting. Penalties for failure to file ($100,000 per month), substantial understatement (20% of underpayment), and fraud (75% of underpayment).

Definitions:

Covered Group: Entities consolidated for financial reporting with annual revenue exceeding €750 million (approximately $825 million) in at least two of four preceding fiscal years. Excludes government entities, international organizations, non-profit organizations, pension funds, sovereign wealth funds, and qualifying investment funds.

US Nexus: Covered groups include any group with US ultimate parent entity, US constituent entity, or US-source income exceeding $25 million annually.

Substance Exclusion: Payroll carve-out of 5% of eligible payroll costs. Tangible asset carve-out of 5% of carrying value.

QDMTT Calculation: Amount necessary to bring effective tax rate on US profits to 15%, after accounting for federal, state, and local income taxes. Collected before any foreign Undertaxed Profits Rule (UTPR) claims.

Income Inclusion Rule Calculation: For each foreign jurisdiction where effective tax rate is below 15%, top-up tax equals (15% minus ETR) multiplied by (Excess Profit), where Excess Profit equals GloBE Income minus Substance-Based Income Exclusion.

What Changes

Before: No US Pillar Two implementation despite 140+ country adoption. GILTI blending allows effective rates below 15%. Other countries (EU, UK, Japan) collect top-up taxes on US multinationals' undertaxed profits. Country-by-country reporting voluntary. $60-100B annual revenue loss to profit shifting.

After: Pillar Two fully implemented with 15% country-by-country minimum. US collects QDMTT before foreign jurisdictions can apply UTPR. GILTI strengthened to 100% inclusion with no blending. Mandatory GloBE Information Returns. Public country-by-country disclosure. $65B annual revenue⁷.

ROI

Federal Budget Impact

Costs:

Item	10-Year
IRS Pillar Two administration and enforcement	$2.0B
GloBE Information Return processing	$0.5B
Total Costs	$2.5B

Savings:

Item	Gross	Capture	Net
Top-up tax at 15% minimum (IIR)	$400B	100%	$400B
GILTI strengthening (blending elimination)	$250B	100%	$250B
Total Revenue	$650B	100%	$650B

Societal Benefits

Benefit	Annual	NPV (3%)	NPV (7%)
Reduced profit shifting incentives	$5B	$43B	$35B
Level playing field for domestic businesses	$3B	$26B	$21B
Enhanced tax transparency	$1B	$9B	$7B

Summary

Category	10-Year	Notes
Total Revenue	$650B	From Pillar Two implementation
Total Costs	$2.5B	Administrative and enforcement
Net Benefit	$647.5B	Average $65B annually

Measurable Outcomes: Number of covered groups filing GloBE returns. Aggregate top-up tax collected by jurisdiction. Reduction in low-tax jurisdiction profits. Comparison of US collection vs. foreign UTPR claims.

References

1. OECD/G20 Inclusive Framework on BEPS, Pillar Two Model Rules (December 2021)
2. GAO-23-105500 Multinational Tax Compliance
3. EU Minimum Tax Directive 2022/2523; UK Finance Act 2023 (Pillar Two); Japan 2023 Tax Reform; South Korea 2023 Tax Reform; Canada Global Minimum Tax Act (2024)
4. Joint Committee on Taxation International Tax Analysis
5. OECD Pillar Two Administrative Guidance (February 2023, July 2023, December 2023); GloBE Information Return (June 2024)
6. OECD BEPS Action 13 (Country-by-Country Reporting)
7. OECD Pillar Two Revenue Estimates ($150B globally); Tax Foundation GILTI Analysis; Congressional Research Service, "The OECD Global Minimum Tax" (2024)
8. Tax Cuts and Jobs Act of 2017 (P.L. 115-97) § 951A (GILTI); 26 U.S.C. § 951A (current GILTI provisions); 26 U.S.C. § 904 (Foreign Tax Credit)

Change Log

2025-12-07 - Template Standardization: Converted "ROI Calculation" section to standard table format. Added proper spacing between bullet points. Removed timeline references. Broke semicolon chains into separate sentences for clarity.

2025-12-07 - Inline Citations: Added superscript citations; standardized References section.

2025-12-07 - Legislative Language Removal: Merged unique provisions into Proposed Reform; deleted Legislative Language section.

Document Split (November 2025): Separated from combined Trade Policy document into standalone Global Minimum Tax Implementation Act. Reasoning: Pillar Two implementation is distinct policy requiring focused legislative attention; separation enables clearer accounting of $65B revenue contribution to Corporate Accountability concept.

Section 3: Emphasized QDMTT priority over foreign UTPR. Reasoning: Critical that US collects top-up before foreign jurisdictions; without QDMTT, EU/UK/Japan would collect taxes on undertaxed US profits.

Section 5: Strengthened GILTI conforming amendments. Reasoning: Current GILTI blending is primary mechanism allowing effective rates below 15%; country-by-country calculation essential to Pillar Two alignment.

Section 7(c): Added public country-by-country reporting. Reasoning: Transparency enables public accountability and assists enforcement; aligns with OECD BEPS Action 13 and EU disclosure requirements.

Prior Change Log entries: GILTI blending repeal rationale preserved from prior version.