Pillar 2 of the Organisation for Economic Co-operation and Development’s landmark global tax deal signed in 2021 remains among the most consequential cooperative tax achievements in recent history in avoiding base erosion and profit shifting. It is partly a G7 success story.
However, when G7 leaders convened in 2025 for their 51st summit in Kananaskis, the world’s leading advanced democracies agreed to spare US companies from core parts of the global minimum tax. The resulting Side-by-Side framework – and its permanent US ‘safe harbour’, although arguably necessary to avert the total collapse of the 2021 global tax regime – has created a stark asymmetry that has eliminated any prospect of a level-playing field.
It was hoped that agreement on the Two Pillar Solution would end a four-decade race to the bottom in corporate taxation. However, five years on, the G7 has inherited a project that has been salvaged but not saved.
A fragile compromise
The key question facing leaders meeting at the G7’s Évian Summit this year is not whether the global minimum tax can survive effective US withdrawal from Pillar 2. Rather, decision-makers must ask themselves whether the G7 will defend what remains and help underwrite the future integrity of the global corporate tax system.
The G7 finance ministers set out the new SbS framework, shielding US-parented multinational corporations from core anti-base erosion rules and, therefore, taxation on their domestic and foreign profits. As subsequently envisaged by the OECD, the US safe harbour will coexist alongside the agreed-upon Pillar 2 framework. This American exception was brokered because of a US presidential directive on the G20-OECD tax deal issued in January 2025, in which the Trump administration declared it would have “no force or effect”.
The zero-sum distributional implications of this shift came into stark relief following the 2025 Kananaskis Summit. The European Union criticised the Canadian government’s role in brokering the safe harbour. During negotiations over the SbS framework, China, Poland and the Czech Republic raised objections about their non-eligibility for the carve-out, and Estonia raised competitiveness concerns. These developments signal a growing fragmentation of the international corporate tax consensus and undermine the integrity of the two-pillar agreement, raising ongoing risks of universal implementation failure.
Pillar 2’s global implementation record since 2023 has also been mixed (see Figure). Among G7 countries, all but the United States have implemented all three Pillar 2 instruments: the income inclusion rule, undertaxed profits rule and qualified domestic minimum top-up taxes. Within the European Union, 81% of members have fully implemented all three rules, and 85% have implemented at least one. This compares to full implementation at 56% among G20 countries, with partial implementation tracking higher at 67%.
Full implementation in the OECD club stands at 68%, with partial implementation sitting at 79%. These statistics illustrate a North-South divide, with 65% of non-OECD jurisdictions having not taken meaningful steps to implement any Pillar 2 rules. Overall, more than 60 jurisdictions worldwide have implemented or committed to Pillar 2.
Resetting the system
At this vital crossroads, G7 leaders must take the following concrete measures to salvage the global minimum tax regime and revive the multi-billion-dollar fight against corporate tax avoidance.
First, leaders should lock in what stability remains. They should commit to a side-by-side architecture that recognises the equivalency of US tax treatment of foreign corporate income, and secure US forbearance on reviving or activating retaliatory taxes.
Second, the G7 should defend a level playing field and ensure there is periodic review to make sure US effective tax rates do not diverge materially from Pillar 2.
Third, leaders should settle digital taxation issues and create a successor framework now that Pillar 1 has effectively been shelved.
Fourth, the G7 should commit to deeper engagement with the United Nations and the OECD, and reform governance of the BEPS Inclusive Framework to ensure greater inclusivity in decision-making and global implementation.
Finally, it is incumbent upon the G7 to invest resources in technical assistance in the Global South to ensure worldwide adoption remains viable.
History will not judge the G7 by what it preserved in 2025, but by what it builds in 2026.
