The GMT connection with the EU and the US

Since 2024, the implementation of the OECD’s Global Minimum Tax (GMT), with its minimum effective tax rate of 15%, marks one of the most significant developments in international taxation in recent decades. Designed to reduce profit shifting and limit harmful tax competition, the GMT seeks to establish a fairer and more stable global tax environment. While its objectives are widely supported, the decision to implement these rules through an EU Directive, rather than nationally, raises important legal, economic, and policy concerns. Despite the theoretical benefits of the GMT, implementing it into EU law arguably risks undermining national tax sovereignty, reducing competitiveness, and imposing rigid harmonization on diverse economic systems.

At its core, the GMT aims to address base erosion by preventing multinational enterprises (MNEs) from exploiting differences in national tax systems to achieve very low effective tax rates. Introducing a global limit makes sense in this regard: it reduces the incentive for governments to engage in a race to the bottom with aggressive tax competition through tax holidays and preferential regimes.

What’s more, the design of the GMT preserves certain investment-friendly features, such as tax write-offs for start-ups’ physical equipment or employee salaries, allowing states to continue supporting real economic activity. In principle, the GMT strikes a balance between limiting harmful practices and maintaining space for legitimate tax policy.

Implementing the GMT through an EU Directive, however, is another story that fundamentally alters this balance. Taxation has traditionally been a key element of national sovereignty, allowing Member States to tailor fiscal policies to their specific economic conditions. A one-size-fits-all approach to corporate taxation, which the Directive largely implements, simply does not adequately reflect economic structures, fiscal capacities, and development levels of 27 Member States, further risking uneven economic outcomes. By embedding the GMT into binding EU legislation, Member States lose a degree of control over their corporate tax systems. This is particularly problematic for smaller or less developed economies within the European Union, which often rely on tax policy as a strategic tool to attract foreign direct investment. The Directive effectively constrains their ability to compete, even where such competition may be economically justified.

Also relevant is the American approach, which cannot be dismissed. The United States has its own minimum tax mechanism for American multinationals operating abroad, known as GILTI, or the Global Intangible Low-Taxed Income. In simple terms, GILTI ensures that American companies pay at least a minimum level of tax regardless of where they operate, with the US government topping up any shortfall. In 2025, the G7 agreed that this American system could run alongside the OECD framework rather than being replaced by it, a so-called “side-by-side approach“, meaning the US does not need to apply the OECD’s own top-up tax mechanisms.

The practical consequence is significant. Under this arrangement, American multinationals are effectively shielded from the OECD’s enforcement tools, while EU Member States remain fully bound by all the obligations of the EU Directive implementing them. The asymmetry is stark: the US has secured a minimum tax outcome for its companies through its own rules, without subjecting them to the additional compliance burden the EU Directive imposes on European firms. Rather than a technical footnote, it represents a competitive imbalance that the EU, in its eagerness to implement the GMT through binding legislation, failed to adequately account for.

Setting national tax sovereignty aside, the EU’s early, strict adoption of GMT may create a global competitive disadvantage. The effectiveness of the GMT depends on widespread and consistent international implementation. If other major economies delay or apply the rules less rigorously, EU-based companies could face higher effective tax burdens than their global competitors. This asymmetry risks discouraging investment within the EU and could incentivize businesses to relocate activities to jurisdictions with more flexible approaches.

Another critical issue is the administrative and legal complexity associated with the GMT. The calculation of effective tax rates on a jurisdictional basis, combined with numerous adjustments and exceptions, already creates a significant compliance burden for both taxpayers and tax authorities. The addition of an EU legal layer further complicates implementation, increasing the risk of inconsistent interpretation and enforcement across Member States. This complexity may ultimately undermine the transparency and predictability that the very GMT seeks to promote.

The Global Minimum Tax represents an important step toward addressing profit shifting and stabilizing international taxation, yes. Its implementation through an EU Directive, however, risks creating more problems than it solves. The loss of national tax autonomy, the risk of reduced global competitiveness, the imposition of rigid harmonization, and the increase in administrative complexity all speak to its sub-optimality. A more flexible, coordinated, and globally balanced implementation method would better preserve the intended benefits of the GMT while minimizing its unintended consequences.

Considering the broader constitutional framework of EU law and the CJEU’s jurisprudence, the Pillar Two Directive raises important questions regarding proportionality, subsidiarity, and the balance between EU coordination and Member State fiscal autonomy. While the objective of addressing tax base erosion is legitimate and widely supported, the use of binding EU legislation and the resulting degree of harmonisation may be viewed as extending beyond what is necessary to achieve that objective. Economically, the Directive also raises concerns about compliance costs and the potential impact on the competitiveness of multinational enterprises and investment within the EU.