In a dramatic turn for international tax policy, the G7 nations have unveiled a “side-by-side” framework that redefines how multinational corporations—especially those headquartered in the United States—will be treated under the global minimum tax regime.
This move comes in response to the U.S. withdrawal from the OECD’s Pillar Two agreement, which mandates a 15% minimum effective tax rate for large multinational enterprises.
The new system exempts U.S.-parented groups from two key provisions: the Income Inclusion Rule (IIR) and the Undertaxed Payment Rule (UTPR).
These exemptions aim to prevent retaliatory tax measures threatened by the U.S. government and preserve diplomatic and economic stability among G7 members.
Italy, aligning with the OECD’s latest guidance, has updated its domestic legislation to clarify how deferred and anticipated taxes are calculated. The new decree also introduces proportional penalties for reporting violations and safeguards against abuse of discretionary tax agreements.
Meanwhile, the European Court of Justice is reviewing the legality of the UTPR, following a challenge from U.S. business associations. The case raises questions about whether local subsidiaries should bear the tax burden for decisions made by foreign parent companies.
This evolving landscape signals a shift from unified global tax enforcement to a more fragmented, negotiated approach—one that balances national interests with international cooperation.
The G7’s compromise may stabilize relations in the short term, but it also opens the door to future complexities in cross-border taxation.