"What Now?": The Potential Impact Of The G7 Agreement For EU And Swiss Taxpayers

• Published date: 08 January 2026
• Law Firm: Loyens & Loeff
• Author: Mr Beat Baumgartner, Michiel Van Kempen, Laurens Hoek and Julia Ann Nigg

I. Introduction

On June 28, 2025, the G7 issued a joint statement that marked a shift in the global tax landscape. The agreement, reached just days earlier between the U.S. Treasury and its G7 counterparts, confirmed that U.S.-parented multinational enterprises will be fully excluded from the Organisation for Economic Co-operation and Development's (OECD's) Pillar 2 Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR). Instead, the G7 endorsed a "SbS system" (SbS) under which the U.S. international tax regime, particularly the global intangible low taxed income (GILTI) rules (now net CFC tested income (NCTI)), will operate in parallel with Pillar 2. While the OECD Inclusive Framework (IF) had previ ously granted temporary relief to U.S. multinational enterprises (MNEs), the new G7 agreement signals a more permanent accommodation. In response, the U.S. Senate has withdrawn the proposed Section 899, a retaliatory measure targeting jurisdictions that applied Pillar 2 rules to U.S. groups. For European Union (EU) and Swiss taxpayers, the potential implications are complex.

he agreement raises fundamental questions about legal consistency and the future of coordinated implementation. It also introduces new uncertainties, par ticularly for jurisdictions that have already enacted Pillar 2 legislation, such as Switzerland and EU Member States. This article explores the potential legal, policy, and practical consequences of the G7 agreement for EU and Swiss MNEs. It also examines the remaining uncertainties as the global tax order enters a new phase.

II. Background

Pillar 2 is a project by the OECD and G-20 (IF) introducing top-up tax rules to ensure a minimum effective taxation of 15% in each jurisdiction where MNEs with a global turnover of at least EUR750 million op erate. Pillar 2 consists of interwoven measures, including an IIR, a UTPR and an optional qualified domestic min imum top-up tax (QDMTT). Pillar 2 is considered one of the most ambitious international tax policy initiatives to date, and as global implementation has advanced, tensions have emerged between the U.S. and other IF members. These tensions partially stemmed from U.S. dissatisfaction with Pillar 2, with House Republicans f lagging concerns over Pillar 2's extraterritorial aspects for over two years. The tension came to a head in May 2025, when the House fiscal 2026 budget reconciliation bill proposed a new Section 899. Section 899 would have introduced retaliatory measures such as increased with holding taxes against entities from jurisdictions deemed to impose unfair foreign taxes (the UTPR and digital services taxes).¹ While this provision remained in the Senate version released on June 17, Treasury Secretary Scott Bessent announced on June 26 that an agreement was reached with the G7 to remove Section 899 in ex change for limiting the application of Pillar 2 measures to U.S. MNEs, by granting a full exclusion from the IIR and UTPR to U.S.-parented MNEs.²

Despite its initial momentum, Section 899 was put on hold in favor of the SbS system. According to the G7 statement, the SbS system would comprise the following elements. Foremost, U.S.-parented MNE groups would be fully exempt from the application of both the IIR and the UTPR, with respect to profits earned domestically and abroad. Additionally, the SbS system would be de veloped in parallel with efforts to simplify the adminis trative and compliance burdens associated with Pillar 2. Similarly, the agreement also included a commitment to reassess the treatment of substance-based, non-refund able tax credits under Pillar 2.

In late August 2025, a discussion paper from the OECD proposing options on the SbS system was leaked.³ The discussion paper, dated August 13, 2025, proposes that the IIR and UTPR would not apply to the low-taxed profits of in-scope MNE groups headquar tered in a jurisdiction with an "eligible SbS regime." Additionally, the discussion paper states that such a re gime should not interfere with local QDMTTs. In this regard, the discussion paper proposed an initial sugges tion on the criteria to be applied to determine whether a jurisdiction has an eligible SbS regime. The proposal included the following criteria for a jurisdiction to sat isfy. First, it must impose tax on the income of con stituent entities at a rate above the agreed minimum, regardless of whether that income is earned domesti cally or abroad. Second, if the ultimate parent entity (UPE) of an in-scope MNE Group is located in such jurisdiction, the UPE must be taxed at the agreed rate on its share of income from controlled foreign corpora tions (CFCs), including income that has not been dis tributed. Third, such jurisdiction must offer a foreign tax credit or a similar form of relief for any QDMTT paid, subject to the same limitations that apply to other foreign tax credits under domestic law. The discussion paper was shared with delegates of Working Party No. 11, with a deadline to provide written comments by September 5, 2025. To date, no further information on the discussion paper or the outcome of the discussions has been shared...