A Dutch language version of this piece will appear in Dutch tax weekly, Weekblad Fiscaal Recht.
On June 28, 2025, the G7 reached a political agreement that exempts American multinationals from the global 15% minimum tax (Pillar Two). The justification is that U.S. businesses are already subject to minimum taxation under the U.S. “Global Intangible Low-Taxed Income” (GILTI) rules and the “Corporate Alternative Minimum Tax” (CAMT). European companies, however, remain subject to the stricter Pillar Two rules. This emerging dual system is referred to as “GILTI co-existence.” Technical details would need to be worked out, such as how the agreement relates to qualified domestic minimum top-up taxes (QDMTT) in countries where U.S. companies operate through subsidiaries.
The G7 agreement marks a turning point in the international tax landscape. Under U.S. pressure, an asymmetric minimum tax regime has emerged in which European companies are subject to Pillar Two, while their American competitors are exempt. This is not merely a technical adjustment of tax rules—it reflects a geopolitical reality that puts the EU’s strategic autonomy in corporate taxation under significant pressure. The success story of multilateral tax cooperation from 2021 has lost its shine. The Global Tax Deal is now overshadowed by the realism of unilateral self-interest and a shift back toward regionalism and even isolationism. International tax cooperation and the desire to establish a floor in tax competition between countries are only as strong as the geopolitical will behind them. U.S. threats of retaliatory measures in response to initiatives like Pillar Two and digital services taxes from Europe and other regions illustrate the effectiveness of tax policy as a geopolitical pressure tool. Recently, Canada backed down on its digital services tax after the U.S. paused trade negotiation talks.
The core of the asymmetry lies in the different methods of calculating effective tax rates and the associated top-up taxation to the minimum level. The U.S. applies “global blending”—aggregating high- and low-tax jurisdictions—while Pillar Two requires country-by-country calculations: “jurisdictional blending.” There are rumors of a safe harbor rule that would transform Pillar Two into a global blending system, the so-called “global ETR safe harbor,” though this has not yet materialized. Moreover, domestic company tax incentives are excluded under U.S. rules but neutralized under EU Pillar Two rules, leading to a higher effective tax burden and a comparative disadvantage for European businesses. There has been no discussion or planning to address this arguably more significant difference between U.S. minimum tax rules and Pillar Two minimum tax rules.
So far, there has been no political response in Europe. The European Commission claims the changes can be incorporated into EU law without amending the Pillar Two directive. Naturally, the Court of Justice of the EU will eventually clarify. Regardless, the implications of the G7 agreement are significant. The asymmetry undermines the level playing field and contradicts the EU’s ambitions to strengthen its investment climate and strategic autonomy—goals that have been high on the agenda since the 2024 Draghi report. As part of its competitiveness strategy, the Commission published a recommendation on July 2, 2025, to limit corporate tax incentives to “qualified refundable tax credits”—a hybrid of tax credits and refunds. This was developed in Pillar Two to accommodate the U.S. Meanwhile, the recently passed U.S. “One Big Beautiful Bill” focuses on other types of tax incentives. Through the G7 agreement, the U.S. ensures these are facilitated under Pillar Two via “substance-based non-refundable tax credits.” The U.S. is clearly prioritizing its own interests. The Commission hints at following a former U.S. loophole.
This development reflects a broader trend: the decline of the global two-pillar agreement from 2021. Pillar One has already been abandoned—both Amount A and increasingly Amount B. Japan, for example, recently announced it would not implement Amount B and would not accept its application by treaty partners. Pillar Two is under heavy pressure. Now that the U.S. has successfully avoided Pillar Two top-up taxation, it’s likely that emerging powers like China and India will also demand exemptions. Neither country is part of the G7 and was not involved in the political agreement. Countries prefer competition over cooperation it seems. I would not be surprised that once countries like the UK, Switzerland, and Singapore, for instance, see an opening, they will roll back the measures. The EU risks being the only one holding on to an international company tax reform that is being eroded elsewhere. Meanwhile, EU efforts to harmonize corporate taxes—from CCCTB to BEFIT—continue to fail due to EU member states’ desire to retain tax sovereignty. Ironically, those same member states accept a harmonized 15% company tax floor via OECD rules, limiting their policy space. The two-pillar project mirrors a world order in transition.
Yet, there are opportunities. The transition to a post-Pillars era, heralded by the G7 agreement, is the moment for a European response—in the form of a modern, strategically positioned, competitive EU corporate tax.
Hence, a proposal: “Corporate Tax 2.0.” This model:
- Treats the multinational group as the taxpayer (tax consolidation) – who to tax;
- Uses a company tax base with an allowance for corporate equity (ACE) to subject economic profit to taxation while mitigating the debt equity bias – what to tax;
- Allocates the tax base geographically to market jurisdictions based on sales (destination principle) – where to tax;
- Leaves rate-setting to member states (possibly within a range to prevent border-shopping) – how much to tax.
This tax model eliminates the need for complex transfer pricing rules, deduction limitations, CFC regimes, gross-based withholding taxes, tax treaties, digital services taxes, and the problematic two-pillar solution. By allocating the base to sales locations, it creates an inelastic, neutral excess profits tax that effectively addresses any Base Erosion and Profit Shifting (BEPS) issues.
The model offers a strategic potential for the EU, creating an opportunity to be a first mover in establishing an attractive, coherent, and investment-friendly corporate tax climate. U.S. experience with “sales-only apportionment” at the state level shows such reforms can be self-reinforcing. First movers attract investment. Others follow out of self-interest—until everyone has transitioned and a neutral company tax model remains. There’s no reason this can’t happen internationally. The stakes and incentives are even higher.
Corporate tax is not just a budgetary tool. It’s a lever of economic policy and geopolitical influence. The G7 agreement has shattered the illusion of a stable multilateral company tax order. But this is no reason for defeatism. On the contrary, it offers the EU a chance for strategic repositioning. The EU has the scale, institutional structure, and legitimacy to lead—if the EU member states recognize their strategic interest and dare to act together. In a global context where tax competition is also a geopolitical tool, standing still is not an option. If the EU doesn’t move, someone else will—as nearly happened in 2017 with the U.S. Ryan proposal for a “destination-based cash flow tax” (DBCFT). Then, others will define the company tax playing field on which the EU and its member states operate.
The question is not whether a new global fiscal order is coming, but who will shape it. Europe can. With a Corporate Tax 2.0.