Mint Explainer | What’s happening to the global minimum tax deal?

Earlier this month, the US secured a carveout from the Organisation of Economic Cooperation and Development (OECD)-backed global minimum tax framework, allowing its largest companies to rely on domestic tax rules instead of the proposed 15% minimum rate.

The carveout, agreed under a framework endorsed by more than 140 countries, means Washington’s own tax rules will be treated as sufficient for US-based multinationals. While the move does not undo the broader agreement, it has raised questions about consistency across countries and whether the global consensus against tax avoidance could weaken over time, reviving fears of a “race to the bottom" in corporate tax rates.

Mint explains how the global tax deal works, why the US carveout has drawn attention, and what it could mean for India.

What is the OECD’s BEPS project?

The OECD and G20 countries, including India, negotiated a new global tax architecture to curb base erosion and profit shifting (BEPS)—a practice where multinational corporations shift profits to low-tax jurisdictions with little or no real economic activity.

An ‘inclusive framework’ was launched in 2016, and in 2021, over 140 countries agreed to a two-pillar solution to address tax challenges arising from digitalization and globalization.

Under pillar two, large multinational groups are subject to a 15% global minimum effective tax rate, implemented through coordinated domestic rules. Pillar one seeks to reallocate a portion of taxing rights to market jurisdictions such as India, where digital and consumer-facing companies earn revenues without significant physical presence.

Together, the framework aims to restore taxing rights eroded by changing business models. Countries, however, are at varying stages of implementing these rules.

Where does India stand on implementation?

Implementation of BEPS-related measures has been uneven globally. A key instrument—the multilateral instrument (MLI), designed to quickly amend bilateral tax treaties to include agreed anti-avoidance standards—has been signed by about 100 countries and ratified by around 80.

Countries must notify which of their bilateral tax treaties are covered by the MLI, and its application remains treaty-specific and subject to domestic procedures. India has signed and ratified the MLI, but enforcement requires further domestic steps.

Officials say India is closely watching global developments, especially given uncertainty around implementation by major jurisdictions. The US, despite participating in BEPS negotiations, has not signed the MLI and prefers bilateral treaty changes and domestic law measures instead.

What carveout did the US secure this month?

The US has not agreed to some of the most critical elements of the OECD/G20 tax deal, including the global minimum tax and the reallocation of taxing rights.

In January last year, President Donald Trump issued a memorandum stating that the US is no longer bound by the global tax deal and that commitments made by previous administrations do not apply unless enacted by Congress. The memo also directed officials to investigate foreign tax measures affecting American companies and consider “protective measures or other" action.

Subsequently, on 5 January this year, the OECD announced a carveout for US companies through a ‘side-by-side arrangement’. Under this, new safe harbours apply to multinational groups whose ultimate parent entity is located in an ‘eligible jurisdiction’ that meets minimum taxation requirements. This effectively keeps US companies largely outside the OECD’s minimum tax net, as US domestic tax laws are deemed sufficient to address tax avoidance concerns.

What are the implications of this carveout?

Because the new safe harbours apply to any multinational group headquartered in an eligible jurisdiction, other countries could potentially seek similar treatment in the future. This raises concerns that the global tax deal could gradually be diluted.

The carveout also complicates efforts to establish a uniform global tax architecture and could give US companies a compliance and competitive advantage over firms from other countries that remain subject to ‘top-up taxes’ in multiple jurisdictions.

What steps has India taken so far?

India is actively moving towards implementing the global minimum tax, with domestic legislation expected soon, according to Nitin Narang, partner at Nangia & Co LLP.

“The primary aim is to ensure that multinational enterprises (MNEs) pay a fair share of tax globally and reduce profit shifting. Domestic laws are being prepared to implement the 15% minimum rate. Also, while implementing the global anti-base erosion or GloBE rules, Indian tax administration should ensure that GloBE rules do not create the risk of double taxation to MNEs," Narang said.

India has already withdrawn its 2% equalization levy on goods, which proved difficult to administer and caused friction with trading partners. However, it will retain the 6% levy on digital advertising until Pillar One is fully finalized.

Pillar One aims to ensure that MNEs pay tax in countries where they earn profits, even in the absence of a physical presence.