For decades, multinational corporations have been able to reduce their tax bills byshifting profits to low-tax jurisdictions – a practice that costs governments hundreds of billions in lost revenue every year. To address this, the Organisation for Economic Co-operation and Development (OECD)/G20 brokered a landmark deal in 2021 known as the "Two-Pillar Solution": Pillar Two introduced a global minimum corporate tax of 15 percent, while Pillar One sought to ensure multinationals are taxed where they actually do business as opposed to where they choose to be headquartered. But the United States (US) has rejected the agreement, and a new "side-by-side package" effectively exempted US companies from its rules. At the same time, a parallel process is underway at the United Nations (UN), where many countries are pushing for a new Framework Convention on International Tax Cooperation, raising fundamental questions about who gets to set the rules of the global economy. To make sense of what all this means for Europe and for multilateralism more broadly, Thomas Rixen, Professor of International and Comparative Political Economy at Freie Universität Berlin, weighs in.
The global minimum tax (Pillar Two) was hailed as a historic breakthrough when it was agreed upon in 2021. Just a few years later, the US secured an exemption, Pillar One remains deadlocked, and a rival process has emerged at the UN. How would you assess the state of global tax reform today?
When the global minimum tax was agreed upon in 2021, it was genuinely remarkable – the first time in a century that states collectively decided to give up a degree of national tax sovereignty to more effectively tax multinationals. That was a real shift. But it was always more fragile than the headlines suggested, and that fragility is showing now.
The core problem is structural. Governments face what I call a trilemma: they can pursue globalisation, national tax sovereignty, and raising adequate revenue from multinationals – but only two of these goals at the same time. For decades, states prioritised deep economic integration and jealously guarded national sovereignty, at the expense of the third leg of the trilemma. Without proper guardrails to effectively tax these international corporations, they could get away with shifting their profits to tax havens. Profit shifting to tax havens became the norm and states footed the bill for the lost revenue. The 2021 deal was an attempt to move toward collecting more corporate tax revenue, accepting some constraints on national sovereignty. But that shift requires sustained political commitment, and the US has since reversed its course, even withdrawing from the Two Pillar Solution altogether.
This withdrawal makes clear that the deal was always dependent on a particular alignment of US political forces (crucially, a Democratic presidency under Joe Biden), which has since broken down. The side-by-side package, ratified in January 2026, institutionalises a double standard: the 15 percent minimum applies to all corporations except those headquartered in the US. These multinationals are deemed to already meet an equivalent standard under domestic law – a claim that is, at best, contested. This package is not a minor accommodation, but rather hollows out the universality the reform is built on.
Pillar One, which would have partially redistributed taxing rights to where companies actually do business rather than where they are headquartered, is effectively dead for now.
We now have a two-tier system: a minimum tax that applies to most of the world's multinationals, but with a significant carve-out for the country that hosts the largest share of them.
And yet I would resist succumbing to pure pessimism. The European Union (EU), Japan, the United Kingdom (UK), and a significant number of middle-income countries have implemented Pillar Two and are collecting top-up taxes that are made up of the difference between local corporate tax and the 15 percent tax minimum. The revenue effects are real, albeit smaller than originally projected. The reform has not collapsed, but it has bifurcated. We now have a two-tier system: a minimum tax that applies to most of the world's multinationals, but with a significant carve-out for the country that hosts the largest share of them. Whether that is sustainable over the medium term, both politically and economically, is the central question, and it remains to be seen.
France and Germany ultimately backed the US-friendly deal under threat of retaliatory taxes. What does this tell us about Europe's ability to defend its own rules when put under pressure?
The episode is certainly revealing, but the diagnosis of what happened needs to be precise. France and Germany did not simply ‘cave’ to US pressure – they made a calculated trade-off under conditions of significant asymmetry. The US significantly raised the stakes: Section 899 of the US tax legislation proposed a surcharge on income flows from countries that imposed what the US deemed ‘discriminatory’ taxes on American companies. For European countries with deep financial and trade exposure to the US, this was not an abstract threat. The costs of standing their ground and refusing to cooperate with US demands would have hit Europe directly and immediately; the benefits of maintaining the full integrity of Pillar Two – even if that meant a carve-out for the US – were more diffuse and long-term.
This dynamic is not new in global tax politics. Powerful states – and especially the US – have consistently shaped international tax rules by leveraging their structural position: the size of their market, the reach of their financial system, and their ability to impose costs on others. Power play is a core feature of how international tax governance works. What is new is the brazenness of this behavior, and the fact that it is directed at European allies rather than at small tax havens.
The lesson is not that Europe is powerless, but rather that tax governance and trade leverage are increasingly intertwined.
What does this tell us about European autonomy? It tells us that the EU's ability to set standards is critically dependent on whether those standards have extra-territorial bite – and whether Europe is willing to use that edge symmetrically. The EU has shown it can impose costs on others when it comes to data protection or competition policy. In issues of tax governance, however, it has been more hesitant, partly because member states have drastically different interests. Ireland, Luxembourg, and the Netherlands – all tax havens within the EU – often veto more determined EU action.
The deeper structural issue is this: Europe implemented Pillar Two as mandatory EU law, which locked in EU member states' commitment to the global minimum tax regardless of US action. That was a genuine act of institutional resolve. But resolve in implementation does not translate automatically into leverage in renegotiation. The US carve-out shows that the US successfully used the threat of trade conflict – a different field to tax governance entirely – to extract a concession that no amount of EU treaty commitment could block. The lesson is not that Europe is powerless, but rather that tax governance and trade leverage are increasingly intertwined. The US is using this issue linkage to its advantage, but Europe has not yet developed a coherent strategy for navigating this.
Developing countries are now pushing for a parallel tax framework at the UN, where they hold a majority. What does this process mean for the future of global tax governance?
The UN Framework Convention on International Tax Cooperation is a good first step – but we should be realistic about what it can and cannot achieve, at least in the foreseeable future.
The UN-led process reflects a genuine and longstanding grievance about how the OECD-led system has systematically disadvantaged developing countries. These imbalances are remnants of how international governance was set up in the early twentieth century: the rules of engagement were designed by capital-exporting countries to protect their interests, and they have never been fundamentally revised since. Countries in the Global South lose a proportionally larger share of their tax base to profit shifting than countries in the Global North – and the rules that set this unlevel playing field were not ones they had any meaningful role in writing. The UN process is an attempt to address that democratic deficit – on these grounds alone, it deserves to be taken seriously.
The political dynamics are also significant. In 2023, the UN General Assembly voted 125 to 48 to launch a formal intergovernmental process to negotiate a new framework convention on international tax cooperation – a direct challenge to the OECD's decades-long dominance in setting global tax rules. That vote was not just symbolic; it signalled that a large coalition of countries is willing to invest political capital in an alternative forum. The negotiations since then have produced concrete outputs: draft protocols on cross-border services taxation and dispute resolution that represent real, if preliminary, steps toward legally binding commitments on issues that developing countries have long sought to address.
The effective reach of a UN framework convention depends heavily on who participates and who implements it.
That said, the effective reach of a UN framework convention depends heavily on who participates and who implements it. If most OECD countries choose not to get involved and treat it as a non-binding complement to the existing system, the practical impact of the UN process will be limited. The real question is whether the convention can create enough normative pressure and coordinating capacity to shift bilateral treaty negotiations in the direction of greater taxing rights for capital-importing countries in the Global South – even without universal participation.
I would argue that the UN process is most valuable not as a replacement for the OECD framework, but as a counterweight to it. It is changing the negotiating context and gives developing countries a collective reference point that strengthens their position in bilateral deals. And if the OECD system continues to become more fragmented over time – as it now clearly is under an American President Trump – the UN process may ultimately turn out to be a more serious alternative venue than it is currently given credit for.
Thomas Rixen is a Professor of International and Comparative Political Economy at Freie Universität Berlin.
Photo: Stock Birken / Unsplash
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