US Carve-Out From Global Tax Deal Creates Accounting Headaches

A US exemption from parts of the revised OECD global minimum tax agreement creates fresh uncertainty for multinationals preparing to file 2026 earnings reports.

The original 2024 minimum tax framework required companies to pay at least a 15% tax rate wherever they operate. The carve-out under the revised agreement has exempted US businesses from key provisions of the minimum tax, which will lower their tax liabilities.

The pace at which countries integrate the new rules into their domestic laws will vary, and the process is likely to take several years to complete. Meanwhile, US multinationals will need to furnish provisional income tax figures in their upcoming quarterly earnings.

Multinationals typically adjust earnings reports to account for changes. But the revised minimum tax agreement means that dozens of countries would need to amend their laws.

“What’s unusual is the magnitude and how many jurisdictions are involved,” said Scott Levine, partner in Baker McKenzie’s Tax Practice Group.

Tax practitioners are encouraging their clients to be transparent with investors about potential fluctuations in tax rates.

“What we’re telling clients is, you have to consider the materiality,” said Michael Williams, Income Tax Provision Services (ASC 740) principal and national practice leader at BDO USA. He added that if there is materiality—a tax impact significant enough that an investor would take note of it—they should disclose it in the qualitative sections of their quarterly reports.

The Organization for Economic Cooperation and Development reached an agreement last month allowing the US tax system to work alongside the global minimum tax framework, also known as Pillar Two.

Under the revised framework, exclusion from certain enforcement requirements could lower the tax liabilities of US multinationals with operations in low-tax jurisdictions that don’t implement a 15% domestic minimum tax rate. That won’t be clear, however, in 2026 financial statements.

Legislative Hurdles

US companies are compiling financial accounts under the rules of the old Pillar Two framework, rather than under the revised framework—accruing cash for taxes they may never need to pay. They’ll likely need to update their models and effective tax rates quarter-on-quarter as countries implement the revised deal.

“We’re not aware of any country at the moment that will have enacted it by the end of Q1,” said Craig Hillier, global leader in international tax and transaction services at EY.

General Electric Aerospace noted in its 10-K annual report that it would “continue to refine the effective tax rate and cash tax impact for Pillar 2 in light of legislative changes in multiple countries.” It’s one of several companies cautioning that their effective tax rates are subject to fluctuations in 2026.

Companies can be in a position at the end of the year to “derecognize” what they had accrued through 2025, Williams said, something that could “absolutely” change their financial statement position.

Multinationals can only disclose legislative changes in their earnings when they are substantially enacted into law, according to global accounting standards developed by the International Accounting Standards Board.

The EU has been cleared to adopt the revised global minimum tax agreement but the changes still need to be adopted by member countries. The Netherlands finance ministry, for example, announced plans in January to submit legislation for the new agreement before the summer of 2026.

The UK will amend its global minimum tax law by the end of 2026 or early in 2027. The law is set to be incorporated as part of the next Finance Act later this year.

The country has announced plans to implement laws retroactively. But this isn’t certain to be the case for every country that has signed the minimum tax agreement.

Patchwork Rules

It’s unclear at this early stage how each jurisdiction will apply various aspects of the minimum tax framework.

Potential disparity in implementation will risk creating longer-term uncertainty about businesses’ effective tax rates as they are presented in the coming quarters.

For example, the minimum tax agreement allows countries to impose a 15% tax rate on multinational companies’ local profits—even profits of US companies. Practitioners caution that countries may rethink this so-called qualified domestic minimum top-up tax, or QDMTT, to avoid retaliation from the Trump administration.

“I think there’s an open question of what happens with those QDMTT regimes. They can all slightly vary, or some jurisdictions could look to have a QDMTT that is more attractive to US investors,” said EY’s Hillier.

Businesses, both in the US and abroad, will need to track the impact of new substance-based tax incentive guidelines on their financial statements, according to Craig Barrowman, partner at KPMG UK who leads the Corporate Tax Advisory and Compliance team in Scotland.

Jurisdictions could have divergent rules on what qualifies as a substance-based tax incentive, he added. Such incentives treat certain payroll and tangible asset costs as qualifying tax incentives, subject to a cap, to help mitigate the impact of Pillar Two.

Bulgaria, for example, only provides a partial substance-based incentive based on tangible assets and not payroll.

“Further clarification is expected from the OECD and local tax authorities but in the interim businesses will need to take a view on some of these points of interpretation,” said Barrowman.

Matt Williams, principal in BDO’s Specialized Tax Services Group, wonders whether the revised tax agreement is ultimately the beginning of a new foundation for tax competition between countries.

“I suspect over time, you’re going to start to see countries diverging, whether that’s protectionist reasons, or for incentive reasons to attract business,” said Williams. “And that’s a little bit more complex to stay on top of.”