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Minimum Tax Under Pressure: Towards a Competitive and Pragmatic European Tax Policy

Current tax policy developments in the United States require a resolute and coordinated response from European policymakers, sending a clear signal. Countermeasures targeting companies operating in the U.S. from jurisdictions that have implemented parts of the global minimum tax agreement are becoming increasingly likely. This development poses a serious threat of competitive disadvantages for German and European companies operating globally. It is high time to protect Europe’s economic interests and preserve its international competitiveness.

The U.S. withdrawal is reshaping the international tax landscape 

The United States’ withdrawal from the OECD/G20 Inclusive Framework’s global tax compromise marks a fundamental turning point in international corporate taxation. As of May 13, legislation currently under consideration by the House Ways and Means Committee explicitly includes retaliatory measures against taxes that U.S. Republicans describe as discriminatory or extraterritorial. 

The proposal foresees punitive tax rates of up to 20 percent on companies based in countries with allegedly discriminatory tax regimes. Specifically named are elements of the OECD-agreed global minimum tax, most notably the UTPR (Undertaxed Profits Rule), as well as digital services taxes. Crucially, the list of affected measures may be updated quarterly at the discretion of the U.S. tax authorities, adding further legal and business uncertainty. 

Given these developments, the EU must urgently respond to protect the competitiveness of its companies. 

Preventing and Compensating for Competitive Disadvantages 

The current U.S. stance on global minimum taxation – coupled with the threat of retaliatory tax measures – places European businesses at a clear competitive disadvantage. To protect the European economy from these consequences, it is crucial to prevent the imposition of punitive U.S. taxes. In this context, escalation strategies, such as introducing an EU-wide digital services tax, cannot be considered as credible instruments for strengthening Europe’s global trade position. Instead, a more constructive approach would be to suspend the implementation of the EU Minimum Tax Directive until a truly global, balanced agreement is reached. This would provide time to resolve legal uncertainties and implement necessary simplifications. If a suspension is not feasible, targeted steps must be taken to shield European companies from discriminatory treatment. Any resulting competitive disadvantages should be offset through appropriate compensatory measures. 

In parallel, additional real simplifications of Pillar 2 and significant bureaucratic relief at the EU level are urgently needed. On that point, we welcome the ECOFIN Council’s call for the European Commission to present a Tax Simplification and Decluttering Agenda by the autumn. However, it is clear that further efforts will be required in relation to Pillar 2. 

Conclusion 

The global minimum tax must not place European companies at a disadvantage. To avoid unnecessary financial burdens, reduce regulatory complexity, and ensure fair competition conditions, policymakers must act. A coordinated European response is crucial to protecting Europe’s economic strength and maintaining long-term competitiveness. You can read our full analysis in our position paper. 

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