Report on the United States’ Exemption from the Global Minimum Tax and Its Implications for Sustainable Development Goals (SDGs)

Introduction

The United States has secured an exemption from the global minimum tax, a key reform championed by the Organisation for Economic Co-operation and Development (OECD). This exemption was granted in exchange for the removal of retaliatory tax measures proposed in the US Senate’s “big, beautiful bill.” This development offers renewed support for the OECD’s global tax reform, which has been endorsed by over 140 countries worldwide. However, the path to successful implementation remains challenging.

Background and Agreement Details

1. On June 28, G7 countries agreed to a “side-by-side” solution that fully excludes US-parented multinational groups from the 15% global minimum tax on large multinationals.
2. This means US multinationals will be subject only to US fiscal law and its own minimum tax thresholds on American profits earned abroad.
3. The G7 joint statement emphasized that this system will help stabilize the international tax system and promote constructive dialogue on digital economy taxation and tax sovereignty.
4. In return, the US government committed to abandoning Section 899 of the “big, beautiful bill,” which proposed retaliatory tax measures potentially affecting up to 80% of existing foreign direct investment (FDI) stock in the US.

US Perspective

• President Donald Trump has opposed the OECD global minimum tax reform, citing concerns over extraterritorial jurisdiction and limitations on US tax policy sovereignty.
• The exemption is viewed by the US administration as a means to reclaim national sovereignty and assert the supremacy of US law over multilateral regulations.
• Treasury Secretary Scott Bessent highlighted that the agreement would prevent the loss of over $100 billion in US taxpayer dollars, referencing estimates from the US Treasury and Congress’s Joint Committee on Taxation.
• The Committee forecasted that without US adoption of the global minimum tax, US fiscal revenues could decline by $122 billion between 2023 and 2033 due to profit shifting and global intangible low-taxed income.

G7 Perspective

• All G7 countries except the US are implementing the global minimum tax, and they represent significant sources of foreign direct investment in the US.
• More than 80% of the current US FDI stock originates from countries subject to the retaliatory tax provisions initially proposed in Section 899.
• Section 899 was perceived as a pressure tactic by the US Treasury to secure carve-outs from G7 partners.
• Experts warn that if the exemption persists, it may lead to a “soft renationalisation” of Pillar Two of the OECD tax reform, with the US implementing the minimum tax on its own terms and limiting enforcement rights of other countries.

Outlook and Implications for Sustainable Development Goals (SDGs)

More than 140 countries have signed up to the global minimum tax reform after extensive negotiations. The G7 statement acknowledges the relevance of these issues to a broader group of jurisdictions and expresses commitment to reaching an acceptable and implementable solution within the OECD/G20 Inclusive Framework.

• All participating countries must confirm the G7 agreement by consensus, but the outcome remains uncertain.
• There is a risk that some non-OECD countries may break ranks, perceiving the US exemption as unfair, which could undermine global tax cooperation.
• Developing countries have expressed concerns that the reform limits their fiscal policy tools to attract investment and address structural competitiveness challenges.
• The legitimacy of the global minimum tax framework depends on whether the exemption is viewed as a fair compromise or as preferential treatment for US multinationals.

SDG Emphasis

The global minimum tax reform and the US exemption have significant implications for the following Sustainable Development Goals:

• SDG 8 (Decent Work and Economic Growth): Ensuring fair taxation of multinational corporations supports sustainable economic growth and reduces inequalities between countries.
• SDG 10 (Reduced Inequalities): The reform aims to reduce tax avoidance and profit shifting, which disproportionately affect developing countries’ revenues and capacity to invest in social and economic development.
• SDG 16 (Peace, Justice, and Strong Institutions): Strengthening international tax cooperation promotes transparency, accountability, and effective institutions.
• SDG 17 (Partnerships for the Goals): The OECD/G20 Inclusive Framework exemplifies multilateral partnerships necessary to address global challenges such as tax base erosion and profit shifting.

Conclusion

The US exemption from the global minimum tax reform represents a critical juncture for international tax cooperation and the achievement of related Sustainable Development Goals. While it offers a temporary lifeline to the OECD reform, its acceptance by the broader international community and developing countries will determine the reform’s ultimate success and legitimacy. Continued dialogue and consensus-building within the Inclusive Framework are essential to ensure equitable and effective global tax governance that supports sustainable development worldwide.

1. Sustainable Development Goals (SDGs) Addressed or Connected

1. SDG 8: Decent Work and Economic Growth
   • The article discusses international tax reforms affecting multinational enterprises and foreign direct investment (FDI), which are key to promoting sustained economic growth and productive employment.
2. SDG 10: Reduced Inequalities
   • The global minimum tax aims to reduce tax avoidance by multinational corporations, which can help reduce inequalities between countries by ensuring fairer tax revenues.
3. SDG 16: Peace, Justice, and Strong Institutions
   • The article highlights international cooperation and governance issues related to tax sovereignty, multilateral agreements, and regulatory frameworks, which relate to building effective, accountable institutions.
4. SDG 17: Partnerships for the Goals
   • The OECD/G20 Inclusive Framework and G7 cooperation on the global minimum tax reform exemplify international partnerships to mobilize resources and strengthen global governance.

2. Specific Targets Under Those SDGs

1. SDG 8
   • Target 8.3: Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation.
   • Target 8.5: Achieve full and productive employment and decent work for all.
2. SDG 10
   • Target 10.5: Improve the regulation and monitoring of global financial markets and institutions.
   • Target 10.c: Reduce to less than 3% the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5%.
3. SDG 16
   • Target 16.6: Develop effective, accountable and transparent institutions at all levels.
   • Target 16.7: Ensure responsive, inclusive, participatory and representative decision-making at all levels.
4. SDG 17
   • Target 17.1: Strengthen domestic resource mobilization, including through international support to developing countries.
   • Target 17.14: Enhance policy coherence for sustainable development.
   • Target 17.16: Enhance the Global Partnership for Sustainable Development.

3. Indicators Mentioned or Implied to Measure Progress

1. Indicator for SDG 8
   • Growth rate of foreign direct investment (FDI) inflows as a measure of productive economic activities and employment generation.
2. Indicators for SDG 10
   • Tax revenue as a percentage of GDP to monitor improvements in tax collection and reduction of tax avoidance.
   • Number of countries implementing global minimum tax reforms to assess regulatory improvements.
3. Indicators for SDG 16
   • Existence and enforcement of international tax agreements and frameworks as a measure of institutional effectiveness and transparency.
4. Indicators for SDG 17
   • Number of countries participating in the OECD/G20 Inclusive Framework and G7 agreements as a measure of global partnerships.
   • Amount of international cooperation and consensus-building on tax reforms.

4. Table: SDGs, Targets and Indicators

Source: fdiintelligence.com