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The European Union is racing to salvage the Global Minimum Tax (Pillar Two) framework following the United States’ abrupt withdrawal from the OECD agreement earlier this year. Diplomatic sources in Brussels confirmed today that member states are negotiating a controversial “side-by-side” mechanism designed to keep the EU compliant without alienating its largest trading partner.
The proposed workaround involves carving out specific exemptions for U.S. multinationals operating within the EU. This “US Carve-Out” would effectively shield American heavyweights from the Undertaxed Profits Rule (UTPR) top-up taxes, provided they meet certain domestic investment thresholds.
The move is a direct response to President Trump’s threat of reciprocal tariffs under Section 891 of the US Tax Code. With the deadline for the US review on “discriminatory taxes” looming in March 2026, European finance ministers are desperate to avoid a trade war.
“We are threading a needle,” said a senior EU tax official who requested anonymity. “We must enforce the 15% minimum tax to maintain internal equity, but we cannot risk a double-taxation clash with Washington.”
Member states are divided. France and Spain are reportedly pushing back against broad exemptions, arguing it undermines the spirit of the original OECD deal, while Ireland and Germany advocate for pragmatism to protect foreign direct investment (FDI).
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