G7 Backs 'Side-by-Side' Agreement, Exemption for US Parented Groups; OECD Secretary-General Welcomes Breakthrough on Global Minimum Tax
G7 finance ministers have issued a joint statement, released 28 June 2025 by the Department of Finance Canada and the US Department of Treasury, announcing a shared understanding to adopt a "side-by-side system" under OECD Pillar Two. This approach would fully exempt US-parented multinational groups from the income inclusion rule (IIR) and undertaxed profits rule (UTPR) in recognition of the existing US minimum tax framework. The agreement aims to protect progress made under the OECD/G20 Inclusive Framework on base erosion and profit shifting while ensuring stability for the international tax system.
This announcement follows recent reporting that US lawmakers will remove the controversial section 899 retaliatory tax from the proposed One Big Beautiful Bill Act (seeCongress to Drop Retaliatory Tax from Pending Budget Bill After G7 Deal Secures OECD Pillar Two Exemption for US Firms (27 June 2025)) after US Treasury Secretary Scott Bessent and congressional leaders confirmed that a G7-level deal had been reached. Section 899, introduced earlier this year, would have imposed surcharges on foreign investors from jurisdictions applying what the US deemed discriminatory taxes against American multinational entities (seeTrump-Backed 'One Big Beautiful Bill' Moves Closer to Becoming Law as US House Narrowly Passes Sweeping Tax Overhaul (22 May 2025) and Congressional Research Service Examines Proposed § 899 Tax Surcharges on Foreign Income in House-Passed 'One Big Beautiful Bill' (11 June 2025).
In their 28 June 2025 statement, G7 ministers said that their understanding "builds on [their] continued commitment to collaborate jointly through the Inclusive Framework to address the potential risks of base erosion and profit shifting" and "is based on the following accepted principles:"
- a side-by-side system would fully exclude US-parented groups from the UTPR and the IIR in respect of both their domestic and foreign profits;
- a side-by-side system would include a commitment to ensure any substantial risks that may be identified with respect to the level playing field, or risks of base erosion and profit shifting, are addressed to preserve the common policy objectives of the side-by-side system;
- work to deliver a side-by-side system would be undertaken alongside material simplifications being delivered to the overall Pillar 2 administration and compliance framework; and
- work to deliver a side-by-side system would be undertaken alongside considering changes to the Pillar 2 treatment of substance-based non-refundable tax credits that would ensure greater alignment with the treatment of refundable tax credits.
G7 leaders highlighted that "the removal of section 899 is crucial to this overall understanding and to providing a more stable environment for discussions to take place in the Inclusive Framework".
Welcoming the G7 breakthrough, OECD Secretary-General Mathias Cormann said the G7 statement "[sets] out a proposed way forward for the operation of global minimum tax arrangements," and emphasized that "[t]his initiative is crucial for enhancing fairness and effectiveness in our increasingly digital and global economy".
Cormann underscored that the G7 side-by-side approach "offers the opportunity to fulfill the original aim of establishing multilaterally agreed limitations on corporate tax competition and also safeguards the tax bases of governments". He added that "any agreement along those lines would provide businesses worldwide with the certainty and stability they need in international tax frameworks". He concluded by reiterating the OECD's commitment to working closely with all member and partner countries to support increased trade, investment, and growth.
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