A recent exemption granted to multinational US corporations from key provisions of the Global Minimum Tax (GMT) is raising serious concerns about the long-term viability and effectiveness of the international tax reform. A new policy brief released by Econpol and disseminated by the Ifo Institute highlights the potential for this decision to significantly undermine years of international cooperation.
The GMT, ratified by 138 countries and implemented in 2024, aimed to establish a minimum corporate tax rate of 15% to curb profit shifting and harmful tax competition. Analysis of German data suggests the framework has been demonstrably effective – with a concentration of profit relocation activity occurring amongst companies exceeding the 750 million euro revenue threshold, a key factor in GMT applicability. These multinational entities accounted for a staggering 95% of profits shifted to tax havens within Germany.
However, the decision by G7 nations to exclude US multinational corporations from specific GMT provisions creates a loophole that could be exploited by some of the world’s most aggressive tax avoiders. Concerns are particularly acute given the uncertainty surrounding whether the US’s own GILTI (Global Intangible Low-Taxed Income) provisions provide a genuinely equivalent level of taxation. This divergence not only compromises the intended level playing field fostered by the reform but also risks diminishing potential tax revenues globally.
The introduction of such regulatory adjustments so soon after the eagerly anticipated implementation of a global policy also introduces significant instability. As Camille Semelet, an Ifo researcher, stated, these changes incur substantial adjustment costs and drastically reduce planning certainty for businesses, potentially eroding confidence in the international tax landscape and hindering future cooperative efforts. The move raises questions about the integrity of the broader international agreement and the willingness of major economic powers to fully commit to a truly equitable global tax system.