Tax News & Views International Weekly: The Global Tax Deal's Highlights and Gaps

On Monday—the 12th day of Christmas, by the way—the Organization for Economic Cooperation and Development announced what has long been on the top of U.S. multinational companies’ wishlist: a confirmed agreement to exempt them from the primary taxing rules of the Pillar Two 15% global minimum tax.

Since the preliminary deal was announced last June, the lack of clear details about how this proposed truce between the U.S. and OECD nations would work has given many corporations pause about whether it could be truly implemented. The broad strokes of the agreement—that the existing U.S. global minimum tax, the 14% tax on net CFC tested income, already prevented tax avoidance and base erosion, making the OECD’s minimum tax unnecessary—were clear enough. And the promise was enough to convince Republicans in Congress to table their retaliatory legislation. But many still wondered if this was just a delay for an inevitable trade war.

This week’s announcement largely allayed those fears, and was hailed by the business community as a major step forward toward tax certainty.

But if U.S. taxpayers think this means they can forget about Pillar Two entirely, they’re in for some winter blues. There are still some lingering requirements, including reporting under the OECD’s global information return. What many tax officers have described as the biggest headache with Pillar Two, skyrocketing compliance burdens, may not be entirely gone. And the OECD has a whole new set of questions to answer in the upcoming year.

The side-by-side exemption—couched as a “safe harbor” by the OECD, mainly to fit within the existing European Union Pillar Two directive—covers the income inclusion rule and the under-taxed profits rule, the two extra-territorial taxes which countries use on income taxed at less than 15%. But it does not include the qualified domestic minimum top-up tax, the tax that countries apply to income in their own jurisdiction. The QDMTT ensures that home countries get the right to tax their own income first, before other countries use the IIR or the UTPR on it. Initially an afterthought in the design process of Pillar Two, it’s become an increasingly important part of the framework–in many cases, it’s the teeth of the regime, the one that companies will interact with the most.

The U.S. strongly opposed the UTPR as an illegitimate tax, because it applied to extra-territorial income, outside of the jurisdiction of the country using it. They mostly held back on the QDMTT, which is a local, national tax. But it’s still part of the Pillar Two framework and uses the Pillar Two management system. That’s why U.S. companies will still have to deal with this part of the OECD system, despite being exempted from the rest. And they’ll still face some compliance requirements.

How much? That’s something the OECD is still working on. According to the side-by-side document released Monday, the organization will update its information return used for Pillar Two compliance, to outline which parts will no longer be applicable for companies operating under the side-by-side exemption. (So far, only the U.S. qualifies for the side-by-side treatment–but there is a process if other countries want to apply.) There is also a “work program for simplification” to look at further ways to streamline the overall system and reduce compliance burdens for all taxpayers. The organization said that both projects would be completed in the first half of 2026.

So U.S. taxpayers have woken up from the nightmare scenario of cascading Pillar Two tax requirements in all jurisdictions they operate in. But there’s still a wait before they can see the big picture of what the OECD system will mean for them going forward.

Noteworthy Items This Week

Tough Trade-Offs on the Horizon for U.N. Tax Talks – Sarah Paez, Tax Notes ($):

Countries negotiating a U.N. tax convention will be tested by stark policy divides and confusion over the scope of the agreement in 2026 as they face a fast-approaching deadline.

While delegates have set a tight timetable for discussions, tax observers say there are many opposing views and muddled ideas that must be reconciled before finalizing the text of a U.N. framework convention for international tax cooperation, including the political ambition of the convention and how it will function in practice.

Why 2026 Is Poised to Be Another Rocky Year for Global Trade – Brendan Murray, Bloomberg News:

The global trading system, which is finishing up one of its most transformational years of the past century, heads into another facing more challenges to stability and growth.

Merchandise trade across the world held up relatively well through 2025, even as US President Donald Trump started erecting a tariff wall around the world’s largest economy. Data cited this week by shipping industry veteran John McCown show global container volumes grew 2.1% in October from a year earlier.

Digital Mandates and AI Reshape VAT Compliance Landscape in 2026 – Eugen Trombitas, Bloomberg Tax ($):

Developed and developing countries rely on VAT as a key source of revenue. Consumption taxes, mostly represented by VAT, are about 30% of total tax revenues in OECD countries.

There is a desire to increase the tax to GDP ratio of developing countries: VAT is seen as key to the tax policy and domestic tax strengthening agenda. The Platform for Collaboration on Tax—a joint initiative of the International Monetary Fund, Organization for Economic and Community Development, United Nations, and World Bank—has observed that VAT could potentially be used to generate more tax revenue.

What’s on the International Tax Agenda for 2026? – Mindy Herzfeld, Tax Notes ($):

If the past year’s developments in international tax are any indication, there’s little chance that 2026 will herald a new era of stability in either the United States or the rest of the world. The Trump administration has thrown into turmoil the OECD’s plans for a two-pillar solution for taxation of the digitalized economy, and domestic developments — including in tariffs and on the legislative, regulatory, and judicial fronts — have left taxpayers and their advisers guessing what comes next.

Top International Tax Cases To Watch In 2026 – Natalie Olivo, Law360 ($):

Major multinational corporations such as McKesson and Coca-Cola will continue to litigate high-stakes international tax cases in 2026, including transfer pricing disputes with billions of dollars on the line and fights over whether regulations exceed the government's authority.

Courts will be grappling with several key cases this year, including Coca-Cola's long-running $2.7 billion transfer pricing dispute and pharmaceutical giant McKesson's challenge to regulations it claims are statutorily invalid in allowing the Internal Revenue Service to allocate income from overseas. In addition, the U.S. Tax Court for the third time will weigh in on healthcare technology company Medtronic's long-running dispute over how to price intangibles that it licensed to a Puerto Rican affiliate.

Public Domain Superhero of the Week

Every week, a new character from the Golden Age of Comics, who’s fallen out of use.

This week’s entry: Luckyman

Debut Year:1945

Debut Publication: Gold Medal Comics #1

Origin Story: A sailor who decided to use his unusually good luck to fight crime.

Superpowers: With good luck, what else do you need?

Eide Bailly's International Tax Team and our affiliates at HLB, The Global Advisory and Accounting Network, stand ready to assist with your worldwide tax needs.

Tax News & Views International Weekly: The Global Tax Deal's Highlights and Gaps

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