Minimum tax of 15 % | How the Big Beautiful Bill has folded the G7

We know that the One Big Beautiful Bill Act De Donald Trump will benefit the rich Americans. What we know less is that the law also served to make the major competitors in the United States bend, including Canada, concerning the minimum tax of 15 %.

Until Saturday, June 28, the Big Beautiful Bill contained a vengeful arrangement towards large industrialized countries. Section 899 allowed the American government to heavily increase the taxes of foreign subsidiaries, the government of which applies the minimum tax of 15 % or the digital services tax.

The vengeful increase in taxes could even gradually reach 20 percentage points after a few years. It was notably a question of restraint on the sums transferred by the subsidiaries foreign to their parent company. In short, the knockout and cae of this world, present in the United States, would have been hardly struck.

Now, after negotiations, the G7 countries have agreed to no longer apply the principle of minimum world tax of 15 % to American companies, essentially, in exchange for the withdrawal of section 899 of Big Beautiful Bill. Negotiations were made in the context of the G7 summit in Kananaskis, Alberta, and the results, announced in a statement from the Canada Ministry of Finance on June 28 ¹.

The abrogation of the digital services tax (TSN) is not mentioned in the June 28 press release, although this tax has appeared as a retaliatory reason in section 899. And although Canada, it must be recalled, announced on June 29 the cancellation of this TSN².

The minimum world tax of 15 % had been considered a huge advance in the fight against tax avoidance of multinationals, in 2021. More than 135 states had then gave their approval and several had applied it, at least partially, including Canada.

Why an advance? Because in principle, countries have every interest in seeing their multinationals pay less tax abroad, since they can thus repatriate more funds to them.

However, under the 2021 agreement, countries like Canada have committed to charging their multinationals themselves if their foreign subsidiaries do not pay a minimum of 15 % on their profits, especially thanks to tax havens.

Under this system, low -rate countries have no advantage in providing multinationals with a rate lower than this minimum of 15 %, since the subsidiaries on their soil would, in any case, impose this rate in their countries of origin.

In short, the countries have promised to play a great tax game with other countries, by disciplining their own multinationals, in a way. The States would collectively emerge from it, collecting more taxes generally to finance their public services.

The Trump clan came to break this agreement, at least with the G7 countries, and for American multinationals.

More specifically, the United States has dropped the provisions that allowed foreign countries to collect, in place of the United States, the minimum of 15 % of American multinational tax which do not reach this target using tax schemes.

The share collected by each foreign country was limited to the pro rata of the global activities of the multinational in their country, but the effect was so dissuasive that it would have prompted the United States to collect themselves on 15 %.

The United States had arguments to justify this 15 %tax exemption. They claim that they are already applying a minimum tax to their multinationals, 10.5 %, and that this tax, although less in principle, is applied more strictly than global tax of 15 %.

In addition, the American Senate would have committed to raising the rate at 14 %, according to what the expert Pascal Saint-Amans explains in a text published on June 30 ³.

Whoever was at the heart of the 2021 negotiations for the OECD is sorry, saying that at least the United States does not oppose that other large countries continue to apply a rate of 15 % or more on their own territory to American or other companies. The exemption only targets tax insufficiently paid overall or elsewhere, for example using tax havens.

The agreement was signed with the G7 countries. It will be necessary to see if the other major industrialized countries will follow suit and if, in front of the right-by-law granted to American companies, these countries will not require the abandonment of the minimum tax for their own companies, too.

The minimum tax was what is called pillar 2 of the world tax reform of OECD countries. The digital services tax (TSN) is part of pillar 1, which has never resulted in a multilateral agreement.

Canada was not the only one to impose this TSN. France, the United Kingdom, Italy and Spain, among others, all have such a tax. The objective of the TSN is to collect taxes from companies which provide income from residents without paying taxes, because they have no physical activities on site.

It will be necessary to come there one day, in all tax justice. In the meantime, American multinationals continue to unduly extract income without paying taxes. And they will not be constrained by the minimum tax of 15 %. Well…

Thank you to the taxpieces Lyne Latulippe and Éric Labelle and to the former Prime Minister Jean Charest for their explanations.

1. Read the G7 declaration on minimum world tax

2. The first payments of the digital services tax, equivalent to 3 % of companies’ income, were to be made on June 30 to Canadian tax authorities by digital companies – especially GAFAM (Google, Amazon, Facebook, Apple, Microsoft) – and report 7.2 billion in 5 years.

3. Read the text of Pascal Saint-Amans (in English)