The Organization for Economic Co-operation and Development (OECD) has circulated a 30-page draft, dated Aug.13, proposing targeted changes to the global minimum tax to address how the regime applies to US multinationals, according to reporting by Bloomberg Tax. The proposal would allow eligible jurisdictions to operate a “side-by-side” system alongside Pillar Two. 

Under the draft, companies based in a jurisdiction that qualifies as “side-by-side” would not be subject to two core enforcement tools: the income inclusion rule and the undertaxed profits rule. Eligibility would turn on three elements: comprehensive taxation at or above an agreed rate on income from domestic and foreign sources, parent-level taxation, at that rate, of income received from controlled foreign corporations, and a foreign tax credit or equivalent relief for a qualified domestic top-up tax. 

The materials also outline features of the US system. They describe the minimum tax on foreign-earned income now referred to as Net CFC Tested Income (formerly GILTI, renamed and revised in legislation enacted July 4 and the 15 percent corporate alternative minimum tax for companies with a three-year average of at least $1 billion in financial statement income. A preliminary OECD analysis indicates US multinationals’ effective tax rates on foreign income could decline by about 0.2-0.4 percentage points in a static scenario and by 0.7-0.9 points in a dynamic scenario, subject to caveats. 

Additional documents propose clarifying the treatment of tax credits, recognizing other eligible side-by-side regimes (with the United States cited in particular), and simplifying reporting for multinationals operating in high-rate jurisdictions. The package reflects a June G-7 compromise aimed at excluding US companies from specified Pillar Two provisions. The OECD has requested public comments by September 5 and plans technical discussion later in the month; Bloomberg Tax reported that it declined to commented on the documents.