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 landmark international tax reform. A new Policy Brief from Econpol, released by the Ifo Institute, highlights the potential to significantly undermine the spirit and practical application of the agreement.
The GMT, implemented in 2024 and endorsed by 138 nations, aims to establish a corporate tax rate floor of at least 15 percent, designed to curb profit shifting and harmful tax competition. While German data analyzed in the study suggests the minimum tax is demonstrably impacting the behavior of larger corporations – revealing that 95% of profit shifting activities are linked to companies exceeding the 750 million euro revenue threshold – the US exemption introduces a critical vulnerability.
The decision by G7 nations to carve out US multinationals from certain GMT regulations creates a loophole for some of the world’s most aggressive profit shifters. This is particularly worrying if the US’s own GILTI (Global Intangible Low-Taxed Income) regime fails to provide a comparable level of taxation. Such discrepancies directly contradict the reform’s stated goal of establishing a level playing field for international businesses and threaten to diminish potential global tax revenues.
Critics argue that the move exposes a lack of unified political will behind the GMT, particularly questioning the willingness of major economies to fully commit to its principles. The exemption undermines the substantial diplomatic effort required to reach the original consensus.
Beyond the immediate financial implications, Econpol researcher Camille Semelet emphasized the broader negative consequences. “Regulatory changes of this magnitude, so soon after the introduction of a long-awaited global policy, incur adjustment costs and reduce planning certainty for businesses” she stated. The instability created risks discouraging future international cooperation on tax matters and jeopardizing the overall integrity of the international tax system. The decision to exempt US firms signals a potential shift towards selective enforcement, prompting questions about the durability of the GMT and its ability to achieve its intended outcomes.
