The global minimum tax was supposed to end the era of corporate tax havens. In 2021, more than 140 countries agreed to a landmark deal: multinational corporations would pay at least 15% tax on their profits, no matter where they booked them. The days of routing billions through Bermuda post office boxes were supposed to be over.
They are not.
On January 5, 2026, the OECD announced a “side-by-side” arrangement that exempts American multinationals from key enforcement mechanisms of the global minimum tax[s]. The United States is currently the only country granted this special status[s]. Even before this carveout, loopholes in the original agreement meant the global minimum tax would raise roughly half the revenue originally projected: $136 billion instead of $270 billion[s]. The US exemption compounds the shortfall.
The Promise That Evaporated
The scale of corporate profit shiftingThe practice of multinational corporations moving profits to low-tax jurisdictions to minimize their overall tax burden. is staggering. Multinational corporations shift roughly $1 trillion in profits to tax havens each year, representing 35% of all profits earned outside their home countries[s]. American companies account for about 40% of this global profit shifting.
IRS data reveals the absurdity of these arrangements. In the British Virgin Islands and Barbados, the total profits American corporations claim to earn exceed the entire economic output of those jurisdictions[s]. In seven tax havens, American corporations report profits exceeding $1 million per employee.
The global minimum tax was meant to make these accounting fictions unprofitable. If a company paid less than 15% somewhere, its home country would collect the difference. But the US negotiated its way out.
How the US Exemption Works
The original Pillar TwoThe OECD's global minimum tax framework ensuring multinational corporations pay at least 15% tax in each jurisdiction where they operate. framework had two main enforcement tools: the Income Inclusion RuleA Pillar Two mechanism allowing parent companies' home countries to impose top-up taxes on undertaxed foreign subsidiaries. (IIR) and the Undertaxed Profits Rule (UTPR). If a company paid less than 15% in a tax haven, these rules let other countries collect the missing tax.
The side-by-side arrangement exempts US multinationals from both[s]. The OECD agreed to treat America’s existing tax system as “equivalent” to Pillar Two, even though it differs in fundamental ways.
Most critically, the US taxes foreign profits in aggregate rather than country by country. This lets corporations blend income from high-tax and low-tax jurisdictions[s]. A company paying 20% tax in Germany can offset that against 0% in Bermuda, bringing its overall rate to a level that satisfies US rules while continuing to benefit from havens.
The Pharmaceutical Bonanza
New disclosure requirements in 2025 revealed which companies benefit most from this system. Major American corporations collectively reduced their tax bills by more than $11 billion through tax havens[s].
The pharmaceutical industry dominates this list. Just 10 drug companies saved more through tax havens than the other 30 analyzed companies combined[s]. AbbVie and Merck each reduced their tax expense by more than $1 billion. Against $11.5 billion in total tax haven savings, US anti-abuse rules clawed back only about $3 billion[s].
Roughly 70% of these savings flowed through just four jurisdictions: Switzerland, Ireland, Puerto RicoFederal law targeting organized crime through prosecution of ongoing criminal enterprises and conspiracies., and the Netherlands[s]. None appear on international tax haven blacklists.
What Comes Next
The side-by-side arrangement includes a 2029 “stocktake” review to assess whether the US system adequately prevents profit shifting. But critics argue the damage is already done. The global minimum tax still represents progress: countries implementing domestic minimum taxes can now collect at least 15% on profits earned within their borders. The side-by-side exemption does not affect these local taxes[s].
Still, the original vision of a coordinated global crackdown on tax havens has fractured. The US secured an exemption that validates its existing, weaker system. And loopholes in the agreement itself allow companies with tangible assets to continue paying below 15%[s].
The global minimum tax still exists. It just has a very large exception for the country whose companies do the most profit shifting.
When 140 jurisdictions agreed to the OECD’s Pillar TwoThe OECD's global minimum tax framework ensuring multinational corporations pay at least 15% tax in each jurisdiction where they operate. framework in 2021, the global minimum tax appeared to be a structural shift in international taxation. By ensuring all multinational enterprises with revenues exceeding €750 million pay at least 15% effective tax on profits in each jurisdiction, the framework promised to eliminate the incentive for profit shiftingThe practice of multinational corporations moving profits to low-tax jurisdictions to minimize their overall tax burden. to low-tax jurisdictions.
That architecture is now compromised. On January 5, 2026, the OECD Inclusive Framework published a “side-by-side” package that exempts US-parented multinationals from the Income Inclusion RuleA Pillar Two mechanism allowing parent companies' home countries to impose top-up taxes on undertaxed foreign subsidiaries. (IIR) and Undertaxed Profits Rule (UTPR)[s]. The United States is currently the only jurisdiction with qualified side-by-side regime status[s].
The Global Minimum Tax Mechanism
Pillar Two operates through three interlocking rules. The Qualified Domestic Minimum Top-up Tax (QDMTT) allows source countries to collect the difference between their domestic tax rate and 15% before other jurisdictions can claim it. The IIR then allows a parent company’s home country to impose top-up taxes on undertaxed foreign subsidiaries. The UTPR serves as a backstop, letting any implementing jurisdiction collect top-up taxes if the IIR fails to capture them.
Under the side-by-side safe harbor, US multinationals remain subject to QDMTTs in jurisdictions that implement them, but are exempt from IIR and UTPR entirely[s]. This means no foreign jurisdiction can collect top-up taxes on US corporate profits that escape both local taxation and the US system.
The Aggregate vs. Country-by-Country Problem
The fundamental weakness lies in how the US taxes foreign income. Under the Net CFC Tested Income (NCTI) regime (formerly GILTI), the US taxes offshore profits at an effective rate of approximately 12.6%, below Pillar Two’s 15% threshold[s]. More critically, NCTI applies to aggregate global foreign income rather than jurisdiction by jurisdiction[s].
This enables “blendingAveraging tax rates across different jurisdictions to meet minimum tax requirements while still benefiting from tax havens.”: corporations can offset taxes paid in high-tax jurisdictions against zero-tax arrangements in havens[s]. A multinational paying 20% in one country and 0% in another might average 10% globally, satisfying NCTI while continuing to benefit from haven structures. Under Pillar Two’s country-by-country approach, the 0% jurisdiction would trigger a full 15% top-up tax regardless of taxes paid elsewhere.
Quantifying the Enforcement Gap
The EU Tax Observatory, led by economist Gabriel Zucman, projected the global minimum tax would raise approximately $270 billion annually. Due to loopholes in the framework itself, that figure dropped to $136 billion before the side-by-side exemption[s].
Key loopholes include substance-based carveouts that allow companies with tangible assets (factories, offices, warehouses) to pay below 15%[s]. Additionally, qualified refundable tax credits for R&D and local investment can reduce effective rates below the minimum while still complying with the agreement[s]. The side-by-side package introduced new safe harbors for substance-based tax incentives, further weakening enforcement.
New corporate disclosure requirements in 2025 revealed the scale of continued profit shifting. Forty major US corporations collectively reduced tax liabilities by $11.5 billion through haven jurisdictions, while US international tax provisions clawed back only approximately $3 billion[s]. Pharmaceutical and biotech companies accounted for the majority: 10 firms including AbbVie, Merck, and Johnson & Johnson saved more through tax havens than the other 30 analyzed companies combined[s].
Concentration is extreme: 70% of disclosed haven savings flowed through Switzerland, Ireland, Puerto RicoFederal law targeting organized crime through prosecution of ongoing criminal enterprises and conspiracies., and the Netherlands[s]. IRS data shows American corporations claiming profits exceeding $1 million per employee in seven haven jurisdictions, and profits exceeding the total GDP of Barbados and the British Virgin Islands[s].
Structural Implications
The side-by-side arrangement effectively creates a two-tier global minimum tax system. For non-US multinationals, the 15% floor applies with full IIR and UTPR enforcement. For US multinationals, only QDMTTs in source countries provide any check on haven structures. The US system’s aggregate approach and lower effective rates remain acceptable under the new framework.
The arrangement includes a 2029 “stocktake” review to assess whether the US system presents “material risk” of sub-15% effective rates. But given that the side-by-side criteria were explicitly designed to match US status quo policy, this review may be academic. The FACT Coalition notes that further US corporate tax cuts, CAMT regulatory weakening, or NCTI rate reductions could jeopardize side-by-side eligibility[s].
Proponents argue the global minimum tax remains a significant achievement: QDMTT adoption by dozens of countries has eliminated the worst zero-tax arrangements, and the principle of a tax floor is now embedded in international agreements. Critics counter that accepting the US system as equivalent to Pillar Two validated a demonstrably weaker standard and set a precedent for other large economies to negotiate similar exemptions.
The 2021 agreement’s fundamental premise was that coordinated enforcement would succeed where unilateral action had failed. The side-by-side arrangement acknowledges that when one economy represents 40% of global profit shifting[s], coordination requires accommodation.
