One of the OECD’s pillars, the Global Minimum Tax, was implemented across the EU in 2024 with specific provisions effective from 2025.
This new international tax was merely a corporate surtax. The uniquely complex rules applied exclusively to multinational groups with global revenues exceeding EUR 750 million annually. The aim was to ensure that the subsidiaries of these multinational corporations paid at least a 15% income tax on profits earned in various countries based on a unified calculation.
Essentially, this created a shadow corporate tax system for the largest multinational companies in the jurisdictions implementing the rules. While these companies’ subsidiaries remained subject to local corporate tax rules, if the tax paid under those local rules did not meet the 15% threshold determined by the GMT’s alternative calculation, the undertaxed subsidiaries had to pay the difference as a top-up tax. If the country of the subsidiary did not collect this, other countries that had also adopted the global minimum tax rules could collect it through a complicated distribution mechanism, certain provisions of which came into effect only in 2025.
One such provision, the “undertaxed payment rule” or “UTPR,” enables jurisdictions to collect the taxes that are “missing” in other undertaxed jurisdictions where no top-up tax was introduced. This could hypothetically mean that Hungary could levy a tax on the undertaxed profits of U.S. multinationals, although America did not introduce global minimum tax rules.
When Trump took office in January, the States formally left the OECD’s inclusive framework, signaling a departure from international cooperation on tax matters. Shortly thereafter, Trump issued an executive order that authorized the U.S. Treasury to take retaliatory actions against jurisdictions applying “discriminatory taxes” like UTPR. This set the stage for a more unilateral approach to international taxation, as the administration sought to protect U.S. interests and mitigate perceived disadvantages for American multinational enterprises.
For the House of Representatives and the Trump administration, the prevailing theory was that U.S. MNEs would face economic disadvantages, such as exposure to double taxation, under the OECD rules. As more countries adopted the OECD’s approach to jurisdictional taxing rights in an increasingly digital economy, the U.S. under President Trump stands out as a notable holdout against this trend, which aimed to deter a profit-shifting “race to the bottom.”
The proposed Section 899 of the OBBBA introduces new tax rules that could significantly impact foreign entities doing business in the United States. It builds on earlier legislation aimed at increasing taxes on foreign individuals and corporations, referred to as “applicable persons.” These include foreign governments, non-U.S. individuals and foreign corporations that are tax residents of countries with discriminatory tax practices. It also covers private foundations and non-publicly held corporations that are majority-owned by these applicable persons.
The term “discriminatory foreign country” refers to any nation that imposes what the States considers unfair taxes, such as digital services taxes and under-taxed payments rules.
The Senate has proposed some significant changes to the House bill. Notably, the implementation of Section 899 would be delayed until Jan. 1, 2027. The tax rate increases would be capped at 15% rather than 20% and would apply automatically to UTPRs but not to DSTs. Additionally, a new provision called “Super BEAT” would adjust the tax base and expand the types of payments subject to these rules.
Overall, this provision would lead to significant tax increases for companies and individuals in jurisdictions with UTPRs, DSTs, and other “unfair taxes.” However, the one-year delay allows more time for negotiations. It is possible that the U.S. administration would apply a similar strategy to that used regarding tariffs, with the ultimate goal not to use the “weapons” provided by Section 899 but to put pressure on trade partners, especially the EU, to make amendments.
Moreover, the proposed changes could override existing U.S. tax treaties, meaning that even if a foreign entity benefits from a lower tax rate under a treaty, the withholding tax could still rise significantly if the entity is from a “discriminatory foreign country.” In summary, the proposed Section 899 aims to impose higher taxes on foreign entities from countries that are deemed to have unfair tax practices, potentially increasing costs for those doing business in the United States and overriding established tax treaty benefits.
As the legislative process continues, the Republican majority in the Senate is focused on passing the OBBBA, including Section 899, by July 4. Following the Senate’s approval, the bill will need to be reconciled with the House version, which may involve further negotiations and adjustments to address concerns from various stakeholders.
Once the final version of the bill is agreed upon, it will be sent to the President for approval. If enacted, the provisions of Section 899 would take effect on Jan. 1, 2027, allowing time for the U.S. Treasury to engage in potential negotiations with affected countries.
The proposed Section 899 has prompted significant concern among EU member states, particularly those that have implemented their own digital services taxes and other measures to address perceived inequities in the global tax system. While only a handful of EU states are applying DSTs (namely, Austria, France, Italy, and Spain), under the EU Directive implementing the global minimum tax, almost every relevant jurisdiction was obliged to introduce UTPR, including Hungary.
The EU faces several options, ranging from bad to worse, in response to the U.S. legislation. One potential response is to do nothing, which could lead to serious disadvantages for EU businesses operating in the United States or trading with it. Alternatively, the EU could consider similar retaliatory actions against U.S. companies, for example, by not respecting double tax treaties concluded by member states with America. That could further escalate tensions and trigger a “treaty war” alongside the ongoing trade war. To avoid this, the EU could initiate negotiations with the U.S. Treasury to find a mutually agreeable solution that avoids adverse consequences for EU member states.
Any negotiations would likely require a reevaluation of the Base Erosion Profit Shifting Pillar 2 framework, which has already been implemented as an EU Directive through a unanimous decision in the European Council, with strong support from influential member states like France and Germany. Therefore, any changes to this framework would necessitate a complex and potentially contentious negotiation process.
The future of the global minimum tax became uncertain when the new U.S. administration took office back in January. There have been reports that a few jurisdictions, including Hungary, have already raised concerns about the GMT framework within the EU in the context of the new U.S. policies.
Other sources indicate that the current Polish Presidency of the European Council of the EU attempted to place the review of the GMT directive on the EcoFin agenda, but certain jurisdictions pushed back. However, if OBBBA and Section 899 pass, revisiting the global minimum tax deal in the EU seems inevitable.
This article was first published in the Budapest Business Journal print issue of June 27, 2025.
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