Executive summary

On 28 June 2025, the G7 issued a statement on global minimum taxes. The statement responds to concerns outlined earlier by the United States (US) Secretary of the Treasury who set out a proposed "side-by-side" solution for Pillar Two in recognition of the existing US minimum tax rules.

The G7 have stated that a "side-by-side" solution could preserve gains made by jurisdictions in tackling base erosion and profit shifting (BEPS) and provide clarity and stability in the international tax landscape. At the same time, IRC Section 899 proposed in the draft One Big Beautiful Bill Act (OBBBA) is removed to provide a more stable environment for follow-up discussions to take place in the BEPS Inclusive Framework.

The shared understanding is based on four "accepted" principles, which include the exclusion of US-parented groups from the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR), as well as commitments to address risks related to BEPS and the level playing field, the parallel delivery of material simplifications and the desire to address the disadvantageous treatment of substance-based nonrefundable tax credits.

In response, the Organisation for Economic Co-operation and Development (OECD) Secretary-General welcomed the G7's breakthrough statement, noting its potential to enhance fairness and effectiveness in global tax systems. The United Kingdom (UK) His Majesty's (HM) Treasury also expressed support, highlighting that the agreement provides greater certainty and stability for UK businesses.

Detailed discussion

On 26 June 2025, US Secretary of the Treasury Bessent announced on social media that a joint understanding among G7 countries would be forthcoming. The announcement noted that the US and the G7 will work cooperatively to implement this agreement across the OECD/G20 Inclusive Framework. (The G7 countries are Canada, France, Germany, Italy, Japan and the UK.) Republican US House and Senate leaders then agreed to remove the proposed IRC Section 899 withholding tax and base erosion and anti-abuse tax (BEAT) retaliatory tax measures from consideration in the OBBBA. (See EY Global Tax Alert, US Treasury Secretary asks Congress to not enact retaliatory tax proposal, dated 27 June 2025).

On 28 June 2025, the G7 issued its statement on global minimum taxes. The G7 statement provides a brief summary of recent developments that have led to the adoption of the statement, noting:

Earlier this year the U.S. Secretary of the Treasury outlined the United States' concerns regarding the Pillar 2 rules agreed by the OECD/G20 Inclusive Framework on BEPS and set out a proposed 'side-by-side' solution under which U.S. parented groups would be exempt from the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) in recognition of the existing U.S. minimum tax rules to which they are subject.

Following discussions on this issue — which were informed by analysis of the respective minimum tax regimes, including consideration of recently proposed changes to the U.S. international tax system based on the Senate amendment of H.R. 1 (introduced June 16, 2025), the One Big Beautiful Bill Act (OBBBA), the removal of section 899 in the Senate version of the OBBBA, and consideration of the success of Qualified Domestic Minimum Top-up Tax (QDMTT) implementation and its impact — there is a shared understanding that a side-by-side system could preserve important gains made by jurisdictions in the Inclusive Framework in tackling base erosion and profit shifting and provide greater stability and certainty in the international tax system moving forward.

The G7 statement sets out four "accepted principles" underlying the shared understanding of the G7, stating:

• A side-by-side system would fully exclude U.S. parented groups from the UTPR and the IIR in respect of both their domestic and foreign profits.
• A side-by-side system would include a commitment to ensure any substantial risks that may be identified with respect to the level playing field, or risks of base erosion and profit shifting, are addressed to preserve the common policy objectives of the side-by-side system.
• Work to deliver a side-by-side system would be undertaken alongside material simplifications being delivered to the overall Pillar 2 administration and compliance framework.
• Work to deliver a side-by-side system would be undertaken alongside considering changes to the Pillar 2 treatment of substance-based nonrefundable tax credits that would ensure greater alignment with the treatment of refundable tax credits.

The G7 statement further notes that "delivery of a side-by-side system will facilitate further progress to stabilize the international tax system, including a constructive dialogue on the taxation of the digital economy and on preserving the tax sovereignty of all countries." The G7 recognizes that "these issues have relevance to a wider group of jurisdictions and look[s] forward to discussing and developing this understanding, and the principles upon which it is based, within the Inclusive Framework with a view to expeditiously reaching a solution that is acceptable and implementable to all." Furthermore, the G7 acknowledges that "the removal of section 899 is crucial to this overall understanding and to providing a more stable environment for discussions to take place in the Inclusive Framework."

Statement by the OECD Secretary-General

On 28 June 2025, in response to the G7 statement, the OECD Secretary-General expressed support, stating, "I warmly welcome today's breakthrough statement by the G7, setting out a proposed way forward for the operation of global minimum tax arrangements." He highlighted that the introduction of global minimum taxes "represents a vital reform in international tax systems … crucial for enhancing fairness and effectiveness in the global economy." The Secretary-General further noted that "the G7 statement on a side-by-side arrangement offers the opportunity to fulfill the original aim of establishing multilaterally agreed limitations on corporate tax competition and also safeguards the tax bases of governments." He emphasized the importance of international cooperation, stating: "International co-operation among sovereign nations enhances tax policy certainty, mitigates the risk of double taxation, and protects tax bases."

UK HM Treasury release

On 28 June 2025, the UK HM Treasury issued a press release welcoming the G7 agreement, emphasizing that it provides "greater certainty and stability as the UK reached a common understanding with G7 partners on international tax rules." The Chancellor of the Exchequer noted that the agreement addresses how the US and global minimum tax rules will interact, supporting the common objective of tackling multinational tax avoidance. The press release highlighted the removal of IRC Section 899 from the One Big Beautiful Bill, which could have led to substantial additional tax on UK businesses, stating, "the removal of section 899 is crucial to this overall understanding and to providing a more stable environment for discussions to take place in the Inclusive Framework."

The Chancellor further remarked, "Today's agreement provides much-needed certainty and stability for those businesses after they had raised their concerns." The G7's understanding allows for continued discussions on the global minimum tax without the backdrop of potential retaliatory measures, fostering a more conducive environment for negotiations. The UK government will continue to engage with international partners to develop the proposal agreed upon by the G7, ensuring that UK companies remain competitively positioned in the evolving international tax landscape.

Implications

The G7's statement on global minimum taxes represents a significant development in international tax cooperation. The G7's understanding also highlights the need for the OECD/G20 Inclusive Framework to consider the implications of a side-by-side solution. The OECD/G20 Inclusive Framework, comprising more than 140 countries and jurisdictions, will now consider the statement of the G7 and assess the principles outlined for developing a side-by-side solution. The meeting of the G20 Finance Ministers and Central Bank Governors on 17-18 July 2025 may also consider the G7 statement.

Stakeholders should anticipate ongoing discussions regarding the interaction between US minimum tax rules and the global minimum tax framework as the Inclusive Framework considers potential changes to the Pillar Two framework. Businesses operating internationally should closely monitor the developments, as the G7 statement and subsequent discussions within the Inclusive Framework could significantly affect their tax obligations, competitive position and the level of their compliance requirements and administrative costs. Engaging with policymakers and staying informed about legislative changes will be essential for navigating the evolving global tax landscape.