US vs OECD Global Minimum Tax: Uneven Field for Multinationals

Two Rules, Two Worlds: How US and OECD Global Minimum Tax Regimes Create an Uneven Playing Field for Multinationals

Introduction: The Illusion of a Level Playing Field

Imagine two multinational companies. Both are large, both operate in the same countries, both run the same business — one in a high-tax jurisdiction, one in a low-tax haven. Same structure, same risk, same footprint. Yet at the end of the year, one pays a significantly higher minimum tax than the other. Not because it did anything wrong. Not because it was more aggressive in its planning. Simply because its parent company is headquartered outside the United States.

This is not a hypothetical. It is the operational reality of the post-2026 international tax landscape — and it is the central tension that this article sets out to explain.

For years, the OECD and G20 worked towards a global minimum tax — a 15% floor that would ensure large multinationals pay at least some tax wherever they operate. The result was the Pillar Two framework, also known as the GloBE Rules, now enacted in over 30 jurisdictions including the entire European Union, the United Kingdom, Japan, Singapore, and Australia.

The United States, however, never adopted Pillar Two. Instead, it runs its own parallel minimum tax system under the GILTI regime, introduced in 2017. And in January 2026, the OECD formally acknowledged this divergence by publishing what it calls the Side-by-Side Package — a framework for managed coexistence between the two systems.

The result? A global minimum tax that is not, in practice, truly global — and a structural asymmetry that has real consequences for non-US multinationals competing in the same markets as their American counterparts.

What Is the Global Minimum Tax — and Why Does It Exist?

The global minimum tax is a coordinated international effort to put a floor on corporate tax competition. For decades, governments have competed with each other to attract investment by offering lower and lower corporate tax rates. This so-called ‘race to the bottom’ resulted in large multinationals routing profits through low-tax or no-tax jurisdictions — perfectly legally — while paying far less in tax than domestic companies.

The OECD’s Pillar Two solution, agreed upon in 2021 and now being implemented globally, sets a minimum effective tax rate of 15% on the profits of large multinational groups — those with annual revenues exceeding EUR 750 million. If a company’s profits in a particular country are taxed at less than 15%, a ‘top-up tax’ kicks in to bring the effective rate up to that floor.

The mechanism works through two main rules. First, the Income Inclusion Rule (IIR), which asks the parent company to pay the shortfall at home. Second, the Undertaxed Profits Rule (UTPR), which acts as a backstop — if the parent country has not collected the top-up, other countries where the group operates may step in and collect it. There is also a third tool: the Qualified Domestic Minimum Top-Up Tax (QDMTT), which allows individual countries to collect the top-up themselves before the IIR or UTPR can apply.

The critical design choice in this system is that the 15% floor is calculated country by country — not as a global average across all jurisdictions. This is known as jurisdictional blending, and it is the feature that most sharply distinguishes GloBE from the American approach.

Understanding the Two Systems

OECD Pillar Two (GloBE Rules)

Under GloBE, every country in which a multinational operates is assessed individually. If Company X has a subsidiary in Ireland taxed at 8% — below the 15% floor — a top-up of 7% is triggered on that Irish subsidiary’s profits. The fact that Company X also has a subsidiary in Germany paying 30% is irrelevant. High-tax and low-tax jurisdictions do not offset each other. Each country stands alone.

This jurisdictional integrity is the backbone of Pillar Two. It closes the classic planning structure of parking profits in low-tax jurisdictions while running operations in high-tax ones.

The US GILTI Regime

GILTI — Global Intangible Low-Taxed Income — was the United States’ own answer to profit shifting. Enacted as part of the Tax Cuts and Jobs Act in 2017, it imposes a minimum tax on foreign profits of US corporations. However, it works very differently from GloBE.

GILTI uses global blending. All foreign income from all foreign subsidiaries is pooled together and a single blended effective rate is calculated. If the average comes in above the GILTI threshold — roughly 10.5% to 13.125% depending on deductions and credits — no additional US tax applies. A low-tax subsidiary in Cayman Islands can be shielded by a high-tax subsidiary in Germany.

Additionally, GILTI has a carve-out for routine returns on tangible assets (QBAI — Qualified Business Asset Investment), which has no equivalent in GloBE. And critically, the effective minimum rate under GILTI is lower — between 10.5% and 13.125% — compared to the hard 15% floor under GloBE.

The OECD has confirmed that GILTI, in its current form, does not qualify as an equivalent to the GloBE IIR. It is a functionally similar but structurally non-equivalent regime.

The Core Issue: Structural Asymmetry

The difference between global blending and jurisdictional blending is not merely academic. It produces materially different tax outcomes for companies that are otherwise identical in structure and operations. Consider the following example.

A Practical Example

Take two multinational groups — one headquartered in the US, the other in the EU. Both have identical structures: a subsidiary in Germany with a 25% effective tax rate and a subsidiary in the Cayman Islands with a 5% effective tax rate.

For the EU-headquartered group:

• GloBE looks at each country separately.
• The Cayman subsidiary is taxed at 5% — 10% below the 15% floor.
• A top-up tax of 10% is imposed on the Cayman profits. Full stop. Germany’s 25% rate is irrelevant to this calculation.

For the US-headquartered group:

• GILTI blends all foreign income. Germany (25%) and Cayman Islands (5%) are pooled.
• The blended rate across both subsidiaries may comfortably exceed the GILTI threshold.
• No additional US minimum tax applies. The Cayman subsidiary’s 5% rate goes unchallenged.

Same structure. Same low-tax subsidiary. Dramatically different outcome — determined entirely by where the parent entity is incorporated.

The EU-parented group pays top-up tax on its Cayman profits. The US-parented group does not. This is the structural asymmetry at the heart of the current international tax framework.

The OECD Side-by-Side Package: What Changed in January 2026?

The Side-by-Side Package, published by the OECD in January 2026, is the formal response to a problem that had been building for years: how to manage the coexistence of two globally significant but structurally incompatible minimum tax systems.

Without a framework, implementing countries would have been entitled to apply UTPR collections against US-parented groups — since GILTI is not a qualifying regime under GloBE. This would have triggered significant diplomatic friction, bilateral treaty disputes, and potential US retaliation under domestic law provisions.

What the Package Does

The core feature of the Side-by-Side Package is a safe harbour mechanism. Under this arrangement, implementing jurisdictions that formally align their GloBE legislation with the Package will treat US multinational groups as conditionally exempt from the IIR and UTPR — provided the US group is subject to GILTI and meets the recognition criteria set out in the Package.

In plain terms: if you are a US-parented multinational, participating countries will not come after you with their top-up tax rules — as long as GILTI covers your foreign income and the safe harbour conditions are met.

What Did NOT Change

The Side-by-Side Package did not equalise the two systems. Important distinctions remain:

• QDMTT still applies to US groups. Any country that has enacted a domestic minimum top-up tax can still collect it from US-parented entities operating within its borders.
• GloBE reporting obligations still apply. US groups must comply with information filing requirements in jurisdictions that mandate GloBE reporting.
• The exclusion is conditional, not permanent. If GILTI changes — or if the Inclusive Framework reassesses the recognition criteria — US groups could face renewed IIR and UTPR exposure.
• Non-US multinationals are not covered. European, Asian, and other non-US groups remain fully subject to the IIR and UTPR across all implementing jurisdictions.

The Package, in other words, manages the conflict between the two systems. It does not resolve the underlying structural asymmetry — it formalises it.

Key Practical Implications for Tax Professionals

For tax advisors, in-house tax teams, and CFOs managing cross-border operations, the post-2026 landscape requires careful attention to several practical realities:

• QDMTT exposure is universal. Whether your client is US-parented or non-US-parented, every jurisdiction that has enacted a domestic minimum top-up tax is entitled to collect it. This is now the baseline exposure point for all multinationals, regardless of the Side-by-Side Package.
• Non-US groups face a systematically higher compliance and tax burden. When advising non-US multinationals — Indian companies expanding globally, European corporates with APAC operations — account for the full Pillar Two charge in low-tax jurisdictions. There is no equivalent of the GILTI averaging mechanism available to them.
• Jurisdictional adoption of the safe harbour matters. US groups are only protected where the host jurisdiction has formally aligned with the Side-by-Side Package. In jurisdictions that have not adopted it, residual UTPR exposure may persist.
• US domestic incentives may be neutralised. Where a US-designed tax incentive — a research credit, investment deduction, or manufacturing benefit — reduces an entity’s effective rate in a QDMTT jurisdiction below 15%, the local jurisdiction may collect a top-up tax that effectively offsets the incentive. This is a planning risk that requires proactive modelling.
• GloBE reporting is a live obligation. Even where the IIR and UTPR do not apply, US groups must track GloBE data and file information returns in multiple jurisdictions. This is not a trivial compliance exercise.
• The transitional safe harbour is time-limited. The OECD’s transitional provisions are not permanent. Tax teams should plan for a scenario where the framework evolves and additional charges may apply.
• Transfer pricing and substance still matter. The GloBE payroll and tangible asset carve-outs reward genuine economic substance. Groups with real operations — not just holding structures — in low-tax jurisdictions may have a lower effective GloBE top-up.

The Treaty Angle: Article 24 and Non-Discrimination

Beyond the practical tax exposure, there is a fundamental legal question embedded in this asymmetry: is it permissible under existing bilateral tax treaties for a country to impose a higher effective minimum tax on a non-US-parented business simply because its ultimate parent is not American?

This is where Article 24 of the OECD Model Tax Convention — the non-discrimination provision — becomes relevant.

What Article 24 Says — in Plain Terms

Article 24(5) is the key provision here. It prohibits a country from taxing an enterprise owned or controlled by a resident of the other contracting state more heavily than it taxes a similar enterprise owned locally. Translated to the Pillar Two context: if a French company’s German subsidiary faces a full IIR top-up, but an American company’s identical German subsidiary does not — solely because the American group benefits from the Side-by-Side exclusion — does that constitute discriminatory treatment of the French enterprise in Germany?

The OECD’s Inclusive Framework has asserted that GloBE and the UTPR are treaty-compatible. But that assertion is contested. Asserting compatibility and demonstrating it through treaty analysis are different things — and the Side-by-Side Package, by formally embedding the differential treatment into its design, may have made this question more acute rather than less.

The Core Comparability Question

The comparability test under Article 24(5) asks whether two enterprises are similarly situated in all material respects except for the ownership criterion. Here, the answer is arguably yes. A US-parented group and an EU-parented group operating through the same low-tax subsidiary, in the same jurisdiction, conducting the same business activity, face different minimum tax outcomes based on one single variable: where the ultimate parent is incorporated.

Whether that differential rises to the level of impermissible discrimination under any given bilateral treaty depends on the specific treaty language, the applicable commentary, and ultimately — potentially — judicial or arbitral resolution. This remains an open and consequential question.

Critical Analysis: Policy and Litigation Outlook

The Side-by-Side Package is a pragmatic achievement. It prevents the most disruptive scenario — widespread UTPR collections against US companies triggering a diplomatic crisis — and gives the global framework a degree of political stability it would otherwise lack without US participation.

But pragmatism and equity are not the same thing. The Package achieves managed coexistence between two systems, not structural equivalence between the companies subject to them.

The Competitive Dimension

A non-US group competing with a US group in the same market, with the same low-tax subsidiary structure, faces a systematically higher minimum tax burden. This is not a consequence of more aggressive tax planning. It is a consequence of where the group’s parent entity happens to be registered. Over time, this has the potential to influence investment decisions, cross-border structuring, and even where groups choose to list and incorporate.

The Sovereignty Question

There is also a dimension that affects the United States itself. Where a US-designed tax incentive — intended to encourage domestic investment or research — reduces an entity’s effective rate below 15%, a foreign jurisdiction may collect a QDMTT top-up that effectively neutralises the fiscal benefit Congress intended to create. The US government is aware of this: the Internal Revenue Code contains a countermeasure provision — Section 891 — authorising doubled US tax rates on residents of countries imposing discriminatory taxes on US persons. It has not been invoked in the Pillar Two context, but its existence signals US awareness of the sovereignty dimension.

The Litigation Horizon

The unresolved Article 24(5) question is not merely theoretical. As GloBE matures and tax administrations begin active enforcement, disputes will arise. Non-US groups in implementing jurisdictions facing IIR top-up charges may seek to challenge that treatment under bilateral treaties on non-discrimination grounds. The responses of treaty partners, tax authorities, domestic courts, and eventually international arbitral panels will define the next chapter of international tax litigation.

The path to resolution — whether through US domestic legislative reform, multilateral agreement, bilateral treaty renegotiation, or further Inclusive Framework accommodation — remains entirely open.

Side-by-Side: US vs GloBE at a Glance

The following table summarises the principal structural differences between the two minimum tax systems:

Conclusion: Calibrated Divergence, Not Global Convergence

The global minimum tax was designed to create a level playing field for multinationals operating across borders. In practice, the post-2026 framework does the opposite — it institutionalises a structural asymmetry between US-parented and non-US-parented groups, by formally acknowledging and accommodating two parallel systems that operate on fundamentally different principles.

The OECD Side-by-Side Package is not a failure. It is a realistic accommodation of geopolitical reality — the United States will not adopt GloBE in the near term, and the global framework has to function without full American participation. The Package manages the most disruptive consequences of that reality. But managed coexistence is not structural equivalence.

The core conclusion is straightforward. Two equally structured multinational groups — one US-parented, one European or Asian — face materially different minimum tax burdens based on where their ultimate parent entity sits. That differential is now formally embedded in the international framework. It produces competitive distortions. It raises unresolved treaty questions. And it will generate litigation.

For Indian companies with global operations, this matters directly. An Indian multinational expanding into Europe or Southeast Asia is fully subject to GloBE in every implementing jurisdiction. Its American competitor, operating through the same low-tax structures, may face a lower overall minimum tax burden. That is the operational reality of the post-Pillar Two world — and tax advisors who are not accounting for it in their structuring and compliance work are leaving their clients exposed.

The international tax framework has shifted from the ambition of uniform global rules to the pragmatism of negotiated compatibility between structurally distinct systems. The Side-by-Side Package is the clearest expression of that shift. Whether the next phase is driven by US legislative reform, bilateral treaty renegotiation, or international litigation, the structural asymmetry at the heart of the global minimum tax will be at the centre of it.

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About the Author: CA Tirth Shah is a Chartered Accountant (ACA, ICAI) from Ahmedabad, Gujarat and the Founder of LexTax Advisors, a specialist practice based in Ahmedabad focused on international taxation, transfer pricing, and bilateral tax treaty advisory and litigation. He advises on cross-border transactions, inbound and outbound structuring, and tax dispute resolution. His research focuses on OECD developments, BEPS implementation, and treaty interpretation under Indian and international standards.

Disclaimer: The views expressed in this article are solely the author’s in a personal and academic capacity and do not constitute legal, tax, or professional advice. This article is intended for informational and educational purposes only.