G7 Endorses 'Side-by-Side' Global Tax Framework, Exempts US and UK Firms from Top-Up Levies

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In a major development that could redefine the global corporate tax landscape, the G7 nations have approved a “side-by-side” framework, effectively exempting American and British multinationals from top-up tax provisions under the OECD’s global minimum tax agreement. The decision is seen as a compromise solution after the United States, under President Donald Trump, withdrew from the original OECD-brokered 15 per cent global minimum tax pact earlier this year.

The new structure recognises existing US tax legislation, allowing American firms to be taxed only under domestic rules—for both local and foreign income—thus avoiding the OECD’s Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR). British companies will benefit from the same carve-outs, offering reprieve from potential double taxation risks. “Today’s agreement provides much-needed certainty and stability for those businesses after they had raised their concerns,” said UK Chancellor Rachel Reeves, quoted by Reuters.

The breakthrough was made possible after the US removed Section 899, a controversial provision in Trump’s new tax bill that threatened retaliatory taxes on foreign companies operating in the US. The clause’s removal eased diplomatic tensions, particularly with European allies, and paved the way for this new dual-track tax solution.

The G7 statement, issued under Canada’s rotating presidency, said the new system aims to provide “greater stability and certainty in the international tax system moving forward.”

This “side-by-side” structure will allow countries like the United States and United Kingdom to retain national control over taxation while honouring the broader goals of the OECD’s Inclusive Framework, especially in curbing base erosion and profit shifting (BEPS) by large multinationals.

Fallout from Trump’s Executive Order

Earlier this year, President Trump withdrew the United States from the 2021 OECD global tax accord, citing concerns over sovereignty and domestic competitiveness. That deal, endorsed by nearly 140 countries, was designed to ensure that large multinational companies pay a minimum 15 per cent tax globally, regardless of where profits are booked.

Trump’s withdrawal and accompanying threats of trade retaliation against countries implementing top-up taxes on US firms had raised alarm among global investors and regulators, prompting urgent diplomatic negotiations within the G7.

Market and Diplomatic Response

The US Treasury, in a post on X (formerly Twitter), called the new side-by-side model a way to “preserve important gains made by jurisdictions inside the Inclusive Framework” and confirmed its intention to work constructively with the OECD to refine the model.

The OECD must now determine how to integrate the G7 carve-outs into its broader global tax framework, particularly how other jurisdictions will treat US and UK firms under the revised structure.

G7 leaders reaffirmed that any final model must be “acceptable and implementable to all,” indicating ongoing challenges in balancing domestic autonomy with multilateral compliance.

What This Means for Global Tax Reform

For US and UK multinationals: They escape punitive top-up taxes in other countries and will instead be subject to domestic minimum tax laws.

For other G7 and OECD members: A need to adjust tax legislation to accommodate exemptions without compromising the original spirit of the global minimum tax.

For global tax equity: The move raises concerns that powerful nations may now shape rules in their favour, potentially weakening the Inclusive Framework’s uniformity.

While the agreement signals progress, it remains unclear how non-G7 countries—especially in the EU, Asia and Latin America—will respond to the exemptions for US and UK corporations. There are also concerns about how digital economy taxation and other profit-shifting loopholes will be addressed under the revised regime.