Global Minimum Tax: What US Multinationals Still Owe Under Pillar Two After the Side-by-Side Deal

WASHINGTON — When the G7 announced in June 2025 that US-parented multinationals would sit "side by side" with the global minimum tax rather than inside it, tax directors at American companies read the news as an exemption. Sixteen months on, with the Inclusive Framework's version of the arrangement in effect and the first GloBE information returns filed, the exemption has turned out to be narrower than the headlines: US groups are shielded from two of Pillar Two's three charging mechanisms, and fully exposed to the third, which is the one most countries chose to enact first.

"Side by side means the other countries will not tax your American profits. It does not mean they will not tax what you earn in their own backyard," a partner in the international tax group of a large accounting firm told The Counsel.

How Pillar Two works

Pillar Two requires groups with consolidated revenue of at least €750 million to pay at least 15 percent in every jurisdiction, computed on financial-statement income with adjustments. Where the rate falls short, three rules collect the difference in a fixed order:

1. Qualified domestic minimum top-up tax (QDMTT). The low-tax jurisdiction itself charges the top-up on the profits of entities located there. It takes priority, which is why Ireland, Switzerland, Singapore and other low-rate jurisdictions enacted one: better to collect the tax than to let someone else.
2. Income inclusion rule (IIR). If the local jurisdiction has no QDMTT, the parent's jurisdiction charges the top-up on the parent.
3. Undertaxed profits rule (UTPR). If neither of the above applies — because, for instance, the parent is in a country without an IIR — other jurisdictions where the group operates deny deductions or impose an equivalent charge to collect the remainder. The UTPR is the backstop, and it was the rule the United States objected to most, because it would have let other countries tax US groups on low-taxed US income.

What the side-by-side arrangement did

The United States never enacted Pillar Two. Its own minimum taxes — GILTI, the tax on controlled foreign corporations' income enacted in 2017 and reworked in the 2025 tax legislation, and the 15 percent corporate alternative minimum tax on book income enacted in 2022 — were never accepted as "qualified" under the OECD rules, and the 2025 legislation as introduced carried a retaliatory provision, Section 899, that would have raised US taxes on investors from countries applying the UTPR to American companies. The G7 deal in June 2025 traded that provision away: the United States dropped Section 899, and the other G7 members agreed to exempt US-parented groups from the IIR and the UTPR, treating the US regime as sufficient. The Inclusive Framework adopted a version of the arrangement at the start of this year, subject to conditions on the US regime remaining in place and to simplifications for groups that qualify.

What still applies

Rule	US-parented group	Why
Income inclusion rule	Not applied	Side-by-side arrangement; the US parent's income is subject to GILTI and CAMT
Undertaxed profits rule	Not applied	Side-by-side arrangement
Qualified domestic minimum top-up tax	Applies in every QDMTT jurisdiction where the group has entities	Charged by the local jurisdiction on local profits; outside the arrangement
GloBE information return and notifications	Required where constituent entities are located	Filing obligations follow the entities, not the parent
Transitional CbCR safe harbor	Available through fiscal years beginning before January 1, 2027	Simplified test using country-by-country data; full computation thereafter
Non-US sub-parents and joint ventures	IIR or UTPR may apply through those entities	The arrangement covers US-parented groups, not every structure they own

Where the money is

For most US groups the practical exposure is the QDMTT in a handful of jurisdictions. The United Kingdom's domestic top-up tax has applied since 2024; the EU member states enacted QDMTTs under the 2022 directive; Switzerland, Canada and Australia charge them; Japan's takes effect for fiscal years from April 2026. Ireland and Singapore, which host large shares of US groups' foreign profits, both chose a QDMTT over losing the revenue to an IIR elsewhere. A US group whose Irish effective rate is 12.5 percent pays the difference to Ireland, with or without the side-by-side arrangement. What the arrangement removed was the risk of a second layer: a German or French UTPR charge on the group's low-taxed income in the United States itself, which the US regime now covers in the view of the other jurisdictions.

The US side has its own arithmetic. The 2025 legislation reworked GILTI — now styled net CFC tested income — with a lower deduction and a higher foreign tax credit allowance, producing an effective rate in the low teens; CAMT applies to groups with average book income above $1 billion. Neither is creditable against a foreign QDMTT in the way a Pillar Two tax would be, and the interaction of QDMTT payments with the US foreign tax credit rules remains an area where Treasury guidance is awaited.

Side by side means the other countries will not tax your American profits. It does not mean they will not tax what you earn in their own backyard.

An international tax partner, to The Counsel

The compliance calendar

• GloBE information returns. The first returns, for fiscal year 2024, were due within eighteen months of year-end — June 30, 2026 for calendar-year groups — in jurisdictions that require them; subsequent returns are due within fifteen months. Groups file once, in a jurisdiction with an exchange agreement, and notify the others.
• Local QDMTT returns. Separate from the information return, on each jurisdiction's own timetable, often with payment.
• Safe harbor expiry. The transitional country-by-country safe harbor, which lets a group skip the full computation where its CbCR data shows a simplified rate above the thresholds, is available only for fiscal years beginning before 2027. From 2027 every QDMTT jurisdiction requires the full GloBE calculation, which most groups have found requires data their systems do not yet produce.
• Monitoring the arrangement. The side-by-side arrangement is conditional on the US regime's remaining in place and is subject to review; a change to GILTI or CAMT could reopen it.

What to do now

1. Map every constituent entity to its jurisdiction's QDMTT status and filing requirements.
2. Compute jurisdictional effective rates for the QDMTT jurisdictions on a full GloBE basis, not only the safe-harbor basis, for 2026, as a dry run for 2027.
3. Identify sub-parents, joint ventures and minority-owned entities through which the IIR or UTPR could still apply.
4. Model the US foreign tax credit treatment of QDMTT payments under current guidance and document the position.
5. Build the data pipeline — deferred tax by jurisdiction, substance-based carve-outs, elections — before the safe harbor lapses.

The Counsel will report Treasury guidance on the credit treatment of QDMTT payments when it issues. Groups near the €750 million threshold should confirm their status under the consolidated-revenue test, which looks to the prior four years.

This report is for general information only and is not legal or tax advice. Readers should consult a licensed attorney or tax professional about their own circumstances.