EU tax Snippet Summer Series #2 Impact of G7 Agreement on P2 on US MNEs – New York office Snippet

What did the G7 agree on?

On June 28, 2025, the G7 announced an agreement on the application of P2 to US MNEs (G7 Agreement). Notably, it includes a full exclusion for US MNEs from the Undertaxed Profits Rule (UTPR) and the Income Inclusion Rule (IIR).  

What does the G7 Agreement mean for US MNEs?

The technical details of the G7 Agreement are yet to be developed, but the ‘full exclusion’ suggests that US MNEs should not be subject to the:
▪️IIR imposed by intermediate holding jurisdictions on foreign subsidiaries;
▪️UTPR on US-based profits; and
▪️UTPR on foreign-based profits.
 
If implemented, the G7 Agreement would significantly reduce the P2 impact for US MNEs.
 
The G7 Agreement does not mention changes to (Qualified) Domestic Minimum Top-up Taxes (QDMTTs). QDMTTs are imposed by jurisdictions with P2 rules on entities in their own territory. US MNEs with subsidiaries in QDMTT jurisdictions would likely remain subject to QDMTTs.

What is the status and timeline of the G7 Agreement?

P2 was developed within the OECD/Inclusive Framework (IF) and enacted through local laws in participating jurisdictions as from 2024 (IIR and QDMTT) and 2025 (UTPR). In the EU, it was implemented through a directive. 
 
By contrast, the G7 Agreement is a political understanding and does not directly change legislation. At this stage, it therefore does not alter the P2 rules in participating jurisdictions. However, given the political momentum behind the G7 Agreement, legislative changes are expected to follow in the EU and elsewhere.
 
The G7 Agreement does not specify when implementation is intended or whether it will apply retroactively. However, given the goal of fully excluding US MNEs from the IIR and UTPR, retroactive application of the G7 Agreement seems necessary.
 
Further clarity is expected in the coming months as the OECD/IF develops the technical framework for implementation of the G7 Agreement, whether through a safe harbour or another mechanism.

How does this impact P2 preparations for US MNEs?

This development is a promising step toward reducing P2 exposure for US MNEs. However, the ultimate impact depends on how and when the agreement is implemented globally. US MNEs should therefore continue their preparations for the IIR and UTPR until formal legislative changes are enacted. QDMTTs will likely remain applicable regardless of the G7 Agreement. As a result, US MNEs still face some exposure and compliance obligations under P2.

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