Pillar 2 uncertainty: Practical steps for U.S. multinationals

How did we get here?

The coexistence of GILTI and Pillar 2 has been debated since the release of the original Pillar 2 blueprint in 2020. Despite temporary mechanisms introduced to address GILTI within the Pillar 2 framework through various iterations of administrative guidance, a clear and permanent solution has remained elusive. Historically, the OECD blueprint acknowledged that GILTI shares similar objectives and scope with the Pillar 2 Global Anti-Base Erosion (GloBE) rules but also highlighted distinct differences, such as global blending, different carry-forward rules, and varying thresholds and expense allocation methodologies. These technical distinctions have complicated attempts at clear alignment.

Moreover, geopolitical tensions and potential retaliatory measures, such as the previously proposed Section 899 retaliatory tax provisions or even the more punitive Section 891, remain possibilities and could resurface if global consensus falters. Section 899 was a proposed U.S. retaliatory tax provision aimed at jurisdictions that impose foreign tax regimes viewed as discriminatory. It targeted not only UTPRs, but also digital services taxes (DSTs) and diverted profits taxes (DPTs). It was originally included in House and Senate versions of the One Big Beautiful Bill Act as a direct response to perceived extraterritorial taxation targeting U.S. multinationals but was removed as a result of the G7 agreement. There may be up to two remaining opportunities for the Trump administration to use the reconciliation process during this Congress, providing avenues to reintroduce Section 899.

Where might we be headed?

The future of Pillar 2 compliance hinges significantly on whether the recent G7 agreement gains broader support across the Inclusive Framework, which is a much larger group encompassing over 140 countries. While the G7’s position is influential, it is not binding on other jurisdictions, and full alignment across the Inclusive Framework would be necessary to fully eliminate the global impact of these rules on U.S. multinational enterprises.

Possible paths forward include treating GILTI as a qualifying IIR, making the existing UTPR safe harbor permanent for U.S. multinationals, blessing the U.S. R&D credit as a compliant Pillar 2 credit and/or potentially introducing a Qualified Domestic Minimum Top-up Tax (QDMTT) safe harbor for U.S. entities (possibly by suggesting that the U.S. tax system itself is comparative to a QDMTT).

Key open questions include:

• Will U.S. multinationals still need to file GloBE Information Returns?
• Will jurisdictions that have implemented QDMTTs retract these for U.S. multinationals or modify them based on the application of the U.S. rules?
• Which financial years will this concept of “GILTI coexistence” apply to? Noting that many jurisdictions may not have legislative procedures that would allow retroactive application to Jan. 1, 2024.

Even if a global agreement is ultimately reached, it is expected that U.S. multinationals will still face compliance obligations in jurisdictions that have implemented QDMTTs. Transitional safe harbor relief may reduce complexity in some cases, but many countries, including Canada, Australia and much of Europe, will still require domestic minimum tax calculations and filings, making local compliance a continued focus. It is expected that these local calculations would still be performed under the Pillar 2 model rules as implemented and enacted locally.

This recent agreement could finally pave a definitive path forward, potentially bringing an end to the cycle of temporary and transitional safe harbors. While businesses fundamentally require certainty, the agreement at least offers a potential path toward greater clarity. However, in the immediate term, the announcement has introduced more uncertainty and created new questions regarding global implementation.

What should U.S. multinationals do next?

The right next steps depend heavily on how far along a business is in its Pillar 2 journey. For groups still in the early stages, there is clear value in pressing ahead with foundational compliance work. That work includes:

• Identifying the Pillar 2 MNE group, including classification of entities, and mapping how different charging mechanisms will apply across the group structure.
• Understanding local registration and filing requirements, some of which have already passed
• Preparing Transitional Country-by-County Reporting (CbCR) Safe Harbour calculations, so they’re ready if needed.
• Ensuring CbCR procedures meet the “Qualified CbCR” definition as part of preparations for the Oct. 15 filing deadline. High-quality CbCR processes are valuable regardless of Pillar 2’s future ꟷespecially with EU and Australian public CbCR now in the horizon.

But for many U.S. multinationals, particularly large, complex corporate groups, this work is already complete. Many tax leaders are now considering how to navigate the path ahead ꟷmanaging spend wisely while still staying prepared in case full compliance is ultimately required. With global alignment still uncertain, many are reassessing whether now is the right time to move forward with software implementation or commit to full-service compliance engagements, and are wisely approaching these decisions with greater caution.

While full-scale software implementation may not be the immediate priority for many businesses, the focus should shift toward rethinking how and when to allocate budget ꟷpotentially outsourcing in the short term while deferring major investment decisions until there is greater clarity. Regardless of how the global consensus unfolds, the three areas below will demand attention in the short term.

• Mission-critical 2025 local deadlines: Countries such as Belgium and Vietnam haven’t changed their timelines. Filings in those nations are still required in 2025 (as of the date of this article). While an international consensus may continue to evolve, in-scope QDMTT filings will likely still be required regardless of whether GILTI coexistence is ultimately agreed upon. Businesses should continue preparing for these filings and consider treating them as discrete compliance obligations.
• Auditor expectations: As stated, the G7 deal should not be seen as a final agreement and therefore won’t be considered substantively enacted for financial accounting purposes. Auditors will still expect clarity and disclosure for FY25 close. Early conversations will help avoid surprises.
• Software planning: Multinationals considering a compliance engine should engage with vendors to understand implementation timelines and resource requirements. Even if businesses choose not to move forward immediately, knowing the lead time helps ensure they are not caught off guard if the full compliance is applicable in FY24 while still allowing space for potential delays or changes in the global landscape. Delaying implementation until the 2025 tax year and relying on outsourced compliance in the interim may be the right approach for many. This strategy provides greater certainty before making large capital investments in software infrastructure and preserves flexibility for short-term compliance. It also gives vendors more time to adapt to provisions that are likely to evolve. Importantly, it can make the eventual transition to in-house software smoother, as businesses will have a prior-year return prepared and filed that can serve as a reference point for migration and configuration.