KPMG LLP tax experts stated on Tuesday that a new OECD agreement establishing a global minimum tax rate for large multinational companies will bring stability to U.S. corporate tax positions. However, they cautioned that short-term calculation complexity and compliance risks are not necessarily reduced.
Last week, 147 countries reached a "side-by-side" agreement under pressure from the Trump administration. This creates safe harbors that exempt large U.S. companies from specific requirements of the OECD's Pillar 2 framework. Pillar 2 is a set of rules designed to impose a worldwide 15% minimum tax on multinational corporations.
The tax regime, supported by the Biden administration, aims to shut down tax havens and curtail international tax avoidance. Its development took lawmakers globally several years. The Trump administration has opposed Pillar 2, arguing that existing U.S. corporate tax laws already provide a robust minimum tax system for American companies. The U.S. is a founding member of the 38-country OECD.
Taxpayers without foreign operations or with consolidated revenues below €750 million are not subject to Pillar 2. The January 5 agreement exempts qualified U.S. companies from Pillar 2's income inclusion and undertaxed profits rules. It maintains, however, a qualified domestic minimum top-up tax. This allows non-U.S. countries to levy a minimum 15% tax on U.S. multinationals on a country-by-country basis, with companies potentially benefiting through foreign tax credits. The Trump administration did not oppose this component.
During a January 13 webcast, KPMG practitioners predicted U.S. companies will generally benefit from the OECD rules in the longer term. "I think ultimately, when we look forward into 2027 and 2028, the world will become much easier, but for now we're in a slightly choppy period in terms of what people need to do," said KPMG managing director Alistair Pepper.
In a separate January 13 webcast, OECD’s Center for Tax Policy and Administration Director Manal Corwin praised the deal. "What last week has demonstrated is a continued global broad-based commitment by countries about the importance of cooperation in tax, the importance of delivering certainty, as well as a commitment to minimum taxation as a policy tool to address distortions but also to protect tax bases," she said.
KPMG principal Marcus Heyland noted that because tax jurisdictions have not yet enacted the side-by-side agreement into domestic law, U.S. companies will likely still need to complete all Pillar 2 calculations for this year despite the exemptions. "The exemptions are 'not enacted yet, it's just in an OECD agreement, and in general we expect that at least public companies will still be required to provision' for the full suite of Pillar 2 rules 'until countries actually get around to enacting the side-by-side safe harbors,'" Heyland said.
"My expectation is there will be a handful of jurisdictions that are able to enact side by side in the immediate term, let's say within the next three months," Heyland added. "But I think there are also going to be a large number of jurisdictions that take between six and 12 months to enact."
Pepper cited the United Kingdom, which has stated it will adopt the exemptions but may require up to 15 months to enact changes through its budget process.
PwC partner Keith Rymer, speaking in a January 14 PwC webcast, concurred. "The OECD administrative guidance that was released is generally not considered law. Most jurisdictions will need to adopt the guidance into their local legislation," he said. "The overall key theme for companies is that they'll all need to closely monitor legislative developments across the globe, not just in 2026 but potentially later years as countries adopt the OECD administrative guidance into their local legislation."
Heyland suggested that European Union doctrine and U.S. GAAP regarding effective dates of international agreements might accelerate the process.
Some companies will remain subject to all Pillar 2 rules for the 2024 and 2025 tax years because the safe harbors are not retroactive. Practitioners agreed the OECD agreement will likely simplify U.S. taxpayer compliance efforts for tax years starting January 1, 2026, and later.
Companies will also be able to simplify information returns by tailoring them for specific tax jurisdictions. KPMG principal Michael Plowgian said the agreement's simplification measures "I think are good news for everybody," noting the OECD has stated it will continue working to simplify global tax rules.
Plowgian added that future work is needed to coordinate the side-by-side agreement with other OECD tax rules, including intercompany financing and transfer pricing adjustment rules.
Pepper stated the January 5 OECD agreement is structured so that the U.S. is the only country qualifying for the safe harbors.