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American companies will be exempt from penalties related to a 2021 global minimum tax deal that President Trump opposes.
The Group of Seven (G7) nations announced on Friday that they have agreed to implement a “side-by-side” tax system, which will exclude American companies from penalties related to the enforcement of a global minimum tax deal originally brokered in 2021 — a deal that the Trump administration has long opposed.
This new arrangement follows months of negotiations aimed at addressing U.S. concerns that the global minimum tax framework unfairly targeted American businesses. As part of the deal, the Trump administration agreed this week to withdraw its support for a so-called “revenge tax” that Congress was considering as a punitive response to international efforts to raise taxes on U.S. companies.
The “revenge tax” proposal, formally known as Section 899, had faced strong opposition from corporate lobbyists and Wall Street. Critics warned it could scare off foreign investment and result in job losses in the United States by potentially increasing tax rates on foreign companies by as much as 20 percentage points if their countries were deemed “discriminatory” due to unfair foreign taxes.
The G7’s joint statement, based on a draft obtained by The New York Times, emphasized that the side-by-side system would help stabilize the international tax system and allow countries to maintain tax sovereignty while continuing discussions about taxing the digital economy.
“Delivery of a side-by-side system will facilitate further progress to stabilize the international tax system, including a constructive dialogue on the taxation of the digital economy and on preserving the tax sovereignty of all countries,” the statement read.
Treasury Secretary Scott Bessent announced on social media on Thursday that the Trump administration was instructing Republicans in Congress to drop the revenge tax proposal, signaling a shift toward more diplomatic tax negotiations.
Background on the Global Minimum Tax and U.S. Opposition
The global minimum tax deal, initially brokered under the Biden administration in 2021, requires participating countries to enact corporate tax rates of at least 15%. The goal is to prevent multinational companies from shifting profits to low-tax jurisdictions and to halt a “race to the bottom” in corporate taxation that diminishes government revenues worldwide.
While many countries have embraced the agreement, the U.S. has implemented its own minimum tax regime, which does not fully comply with the terms of the global pact — a key source of friction in negotiations.
President Trump and some Republican lawmakers have voiced opposition to the global tax deal, arguing that it cedes too much control over the U.S. tax base to international bodies.
Maintaining demand for U.S. Treasury securities is crucial, especially as the government plans increased spending and tax cuts. Any factor that reduces appetite for these securities could drive up yields — an outcome the Treasury Department is keen to avoid.
Next Steps and Digital Services Taxes
The G7 agreement currently applies only to the world’s seven most advanced economies. The deal will need to be extended to the broader Group of 20 (G20) and other nations involved in the 2021 global minimum tax framework.
Notably absent from the G7 statement was any mention of digital services taxes (DSTs), which many countries have enacted to tax the profits of American technology companies. The Trump administration has signaled it may use tariffs as a tool to counteract these DSTs if deemed discriminatory.
The G7’s endorsement of a side-by-side global minimum tax system represents a compromise designed to reduce tensions and prevent a potentially damaging international tax war. By exempting U.S. companies from penalties and dropping the retaliatory tax proposal, the Trump administration has opened the door for a more cooperative, though still cautious, international tax environment.
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