G7 Statement on global minimum taxes

The Statement notes that the G7 discussions were informed by:

• Proposed changes to the international tax system in the US based on a Senate amendment of the ‘One Big Beautiful Bill’ (OBBB);
• The subsequent removal of Section 899 in the Senate version of the OBBB. Section 899 has been referred to as the ‘revenge tax’. Its removal is said to be ‘crucial’ to the overall understanding in the Statement and as noted in the statement released by HMT, UK businesses will benefit from greater certainty and stability on reaching this common understanding; and
• The success of Qualified Domestic Top-up Tax (QDMTT) implementation and its impact in tackling base erosion.

The shared understanding embodied in the Statement is said to be based on four accepted principles. They are:

1. A side-by-side system which would fully exclude US parented groups from the UTPR and IIR in respect of both domestic and foreign profits;
2. A commitment to ensure that any substantial risks with respect to a level playing field or base erosion and profit shifting are addressed to preserve the common policy objectives;
3. Work on the side-by-side system would be done alongside material simplifications being delivered to the Pillar Two administration and compliance framework; and
4. Work on the side-by-side system would be done alongside considering changes to the Pillar Two treatment of substance based non-refundable tax credits to ensure greater alignment with the treatment of refundable tax credits.

The Statement recognises that the concerns addressed in the Statement have relevance to a wider group of jurisdictions and there is a need to discuss and develop this understanding within the OECD Inclusive Framework “with a view to expeditiously reaching a solution that is acceptable and implementable to all”.

The first opportunity for discussions was likely to be during the 9 July 2025 Inclusive Framework (IF) steering group meeting, pursuant to which we may see a statement issued on further details and direction of travel. At the time of writing there had been no update.

The side-by-side approach would provide for the coexistence of the US system and the Pillar Two system and would not seek to undermine Pillar Two. The statement refers to the ‘success’ of QDMTTs in tackling base erosion and profit shifting. The Statement appears to proceed from the assumption that the US system and Pillar Two are intended to address similar concerns and achieve similar results.

However, there are a number of uncertain areas that are likely to be clarified as the side-by-side approach is further developed. These include:

• US subsidiaries of non-US parented groups. There is a question of whether a US subsidiary of a non-US parented group will potentially be subject to an IIR. In this context it is noted that the exclusion of the UTPR and IIR for domestic and foreign profits applies to ‘US parented groups’. There is no mention of an exclusion for non-US parented groups. That question may be why the Statement refers to the Pillar Two treatment of substance-based non-refundable tax credits, which could address the key Pillar Two concerns of US subsidiaries of non-US groups;
• ‘GILTI first’ option. One of the US ‘asks’ on Pillar Two was considered to be the granting of an option for jurisdictions to be able to credit global intangible low-taxed income (GILTI) taxation in a QDMTT calculation of top-up tax. That is a GILTI first approach. Currently, the Pillar two rules adopt a QDMTT first approach. The Statement is silent on this issue;
• Scope of level playing field measures. It is unknown what mechanisms might be adopted to ensure a ‘level playing field’ under the side-by-side approach. Given GILTI is based on global blending and not jurisdictional blending as for Pillar Two, there may be some concerns that this issue will need to be addressed;
• Material simplifications. One of the underlying principles refers to simplification of the administration and compliance framework. This may refer to the Permanent Safe Harbour measures currently under discussion, or possibly a wider set of simplifications;
• Scope of review of incentives. The statement refers to the need for greater alignment between the treatment of refundable and non-refundable tax credits. Under the current rules, refundable tax credits receive a substantially better treatment. This raises the question of whether a review of the rules on incentives under Pillar Two will cover super-deductions and other non-credit concessions or be limited to non-refundable credits;
• Joint ventures and co-ownership. The treatment of entities which are co-owned by US equity on one side and non-US equity on the other side may need to be reviewed. In some cases, such entities may be treated as a separate entity for Pillar Two calculations, and in other cases they may be treated as transparent with different impacts based on which side of the side-by-side approach applies to respective shares;
• Impact on Pillar One. The Statement provides that delivery of the side-by-side approach will facilitate further progress to stabilise the international tax system, including “a constructive dialogue on the taxation of the digital economy.” That statement likely signals that, while the Pillar One discussions appear moribund, the concerns underlying Pillar One remain important to many countries. The Statement, however, does not indicate what the path forward might be to address those concerns;  
• Retrospective application. The Statement would appear to have retrospective application for all Pillar Two calculations. It is uncertain whether this would present difficulties for any specific jurisdictions; and
• Administrative requirements. There is uncertainty as to the full nature of administrative requirements under the side-by-side approach. This should become clearer as the details of the approach evolve.

Affected taxpayers should consider various options that may be adopted in a side-by-side approach that could impact their group, including scenario planning where appropriate. We are yet to see any formal plans from HM Treasury or HMRC but ensuring they are aware of any unforeseen consequences or difficulties that arise from the proposals will be key. This will be particularly important for any measures adopted to keep a level playing field.

We will provide further updates as things progress in future editions of Tax Matters Digest. In the meantime, if you have any questions about how this or any other aspects of the Pillar Two rules might impact your business, please speak to your usual KPMG in the UK contact.

For further information please contact:

• Kashif Javed