The passage of the One Big Beautiful Bill Act (OBBBA) in July 2025 represents a seismic shift in U.S. tax legislation, particularly in the international arena. Among its many provisions, the OBBBA delivers a targeted recalibration of U.S. international tax rules that directly intersect with—and challenge—the OECD's Pillar Two framework. While the global tax community moves forward with implementing a 15% minimum tax on a jurisdictional basis, the United States has opted for a sovereign reinterpretation of global minimum taxation, introducing a reformed version of its GILTI regime instead. This divergence raises significant implications for multinational enterprises (MNEs), especially those with cross-border structures and operations straddling jurisdictions with differing interpretations of minimum taxation.

This article is written by Mario van den Broek ([email protected]) and Iman Zalinyan ([email protected]). Mario and Iman are part of RSM Netherlands Business Consulting Services, specifically focusing on International Tax and Strategy.  

The early headlines surrounding the OBBBA were dominated by the controversial Section 899—widely referred to as the "revenge tax." This provision would have targeted foreign-parented multinationals operating in the U.S. as a retaliatory measure against other jurisdictions that apply top-up taxes to U.S. multinationals under Pillar Two’s undertaxed profits rule (UTPR). The business community responded swiftly, voicing concerns about the chilling effect such a measure would have on foreign direct investment.

Diplomatic negotiations, led by the U.S. Treasury and its G7 partners, ultimately resulted in a coordinated compromise: the U.S. would drop Section 899 in exchange for G7 commitments to exclude U.S.-based groups from UTPR application. This effectively established a "side-by-side" coexistence—U.S. MNEs would stay within a restructured domestic minimum tax system, while foreign MNEs would follow the OECD’s Pillar Two rules.

Inside the OBBBA: the evolution of GILTI and FDII

The heart of the OBBBA’s international reform lies in its overhaul of the GILTI and FDII regimes. GILTI has been rebranded as the Net Controlled Foreign Income (NCTI) regime. Key changes include:

  • The elimination of the QBAI exclusion.
  • A reduced deduction rate, from 50% to 40%; and
  • A smaller foreign tax credit haircut, reduced to 10%.

At the same time, the FDII regime has been renamed the Foreign Derived Domestic Economic Income (FDDEI) deduction and adjusted to a fixed deduction rate of 33.34%.

These changes collectively result in an effective tax rate of about 14% on relevant foreign earnings. Although this is below the OECD’s 15% benchmark, U.S. policymakers contend that the revised system preserves competitive neutrality and economic substance, especially when considered alongside the U.S.’s R&D incentives and cost allocation rules.

Diverging paths: Pillar Two vs. the U.S. Model

The most significant aspect of this reform is structural: the U.S. maintains global blending in calculating NCTI, while Pillar Two requires jurisdictional blending. Moreover, Pillar Two features a substance-based income exclusion (SBIE) for payroll and tangible assets—an element notably missing in the U.S. framework.

This divergence creates a patchwork of international tax regimes that MNEs must navigate. For U.S.-headquartered groups, the result is simplified compliance and protection from foreign top-up taxes. For non-U.S. groups, particularly those with U.S. subsidiaries, the landscape remains fragmented and fraught with risk. Questions remain as to whether other major economies will offer similar carve-outs or seek to challenge the G7 agreement in forums such as the Inclusive Framework.

The implications for MNEs are significant. Practically, companies must now evaluate their exposure under two fundamentally different systems. Some may consider restructuring to take advantage of the more favorable treatment U.S.-parented groups receive under the G7 compromise. Others will need to adjust their Pillar Two calculations, considering the ongoing application of UTPR or the Income Inclusion Rules (IIR).

Transfer pricing policies, intellectual property migration, and entity classification are currently under review. Additionally, tax departments must maintain dual compliance systems to track and report obligations under Pillar Two while modeling exposure under the OBBBA’s provisions. This raises operational costs, increases complexity, and raises the risk of unintended consequences.

Preferences for Safe Harbors  

Negotiations are ongoing concerning the G7's recent agreement to exclude U.S.-based multinational enterprise (MNE) groups from certain OECD Pillar 2 rules, with a clear implementation plan needed by November. This is important for MNEs because the transitional Undertaxed Profits Rule (UTPR) safe harbor expires on January 1, 2026, and a permanent solution or temporary extension is necessary to ensure certainty. The G7 agreement, announced on June 28, aims to protect U.S.-based groups from income inclusion rules (IIRs) and UTPRs in exchange for the U.S. dropping plans for retaliatory taxes.

The EU faces a complex situation as its Pillar 2 directive (Council Directive (EU) 2022/2523) is already in effect. While the G7 agreement might not require changes to the directive, individual EU member states will need to revise their national laws, which presents a tight timeline. The European Commission prefers to implement the G7 principles through safe harbors, as this would avoid the lengthy process of amending the directive. Discussions are ongoing within the OECD's inclusive framework to develop a consensus-based approach that maintains Pillar 2's goals, clarifies rules, and simplifies compliance.

Looking Ahead: certainty or complexity?

Based on recent statements and direct clarifications from tax authorities, here are the key takeaways for US-headquartered multinational enterprises (MNEs).

Potential exemption from core Pillar Two rules is on the horizon.

A "side-by-side" agreement is being developed that could exempt US-parented MNEs from the primary Pillar Two enforcement rules: the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR). This would significantly reduce the global compliance burden for many US groups, provided the agreement is finalized between the US and the OECD's Inclusive Framework.

Domestic minimum taxes (QDMTTs) will still apply.

This is the most critical point for your immediate attention. The potential exemption does not extend to Qualified Domestic Minimum Top-up Taxes (QDMTTs).

  • Continued Obligation: Your subsidiaries in countries that have implemented a QDMTT (such as the Netherlands and most EU nations) will still be required to calculate, comply with, and pay this local top-up tax.
  • Local Filings: Separate, local QDMTT tax filings will remain necessary, regardless of any broader exemption from IIR and UTPR.

A clearer implementation path and timeline are emerging.

Tax authorities have outlined the implementation details of this exemption to provide clarity for businesses.

  • Mechanism: The solution is expected to be a Safe Harbour provision agreed upon by the OECD. This approach is favored by both the EU and the US, as it can be easily incorporated into national law.
  • Timeline: There is a strong push to finalize this agreement by November 2024. This deadline is crucial for EU Member States to amend their local laws in time. Any changes are expected to be applied retrospectively.

What this could mean for your company  

While the potential for a broad IIR/UTPR exemption is welcome news, the immediate priority must be readiness for QDMTT obligations, which are unaffected. We recommend continuing your Pillar Two planning efforts with a primary focus on ensuring you can meet all local QDMTT requirements.

RSM is a thought leader in the field of International Tax consulting. We provide frequent insights through training and the sharing of thought leadership, based on our detailed knowledge of industry developments and practical applications gained from working with our customers. For more information, please contact one of our consultants.