How the US's GILTI Regime Is Quietly Funding Foreign Treasuries Under the Global Minimum Tax

In 2017, the United States Congress enacted the Global Intangible Low-Taxed Income (GILTI) regime, a sweeping mechanism designed to ensure American multinational corporations paid a baseline minimum tax on their foreign earnings. For years, it operated as a reliable revenue engine for the US Treasury, penalizing companies that attempted to shift profits into zero-tax havens by clawing back a percentage of those earnings to Washington. It was a unilateral move that effectively made the United States the world's primary enforcer of corporate minimum taxation.[1][7]

But a quiet, highly technical shift in international tax law is now rerouting those funds. The Organization for Economic Co-operation and Development (OECD) has rolled out its Pillar Two framework, establishing a coordinated 15% global minimum tax across more than 130 participating nations. While the OECD initiative shares the same fundamental goal as the US regime—curbing corporate profit shifting—the mechanical interaction between the two systems is inadvertently transforming how global tax revenue is distributed.[3][4]

The friction lies in how the two systems are architected. GILTI operates as what the OECD classifies as a "blended CFC tax regime." It allows American multinationals to aggregate their foreign income and foreign taxes paid on a global basis. If a company pays high taxes in Germany and zero taxes in Bermuda, the two blend together, often keeping the company above the US minimum threshold. Pillar Two, however, strictly forbids this global blending, testing effective tax rates on a rigid, country-by-country basis.[2][5]

The critical lever in this wealth transfer is a Pillar Two mechanism known as the Qualified Domestic Minimum Top-up Tax (QDMTT). Under the OECD's agreed-upon ordering rules, the QDMTT gives the source country—the jurisdiction where the corporate profits are actually booked—the absolute first right to tax that income up to the 15% floor. It is designed to let local governments capture the minimum tax before a parent company's home country can reach it.[2][3]

This ordering rule changes the entire financial equation for the US Treasury. Before the implementation of Pillar Two, if a US multinational parked billions in profits in a low-tax jurisdiction, the US government collected the difference via the GILTI tax. Now, that same low-tax jurisdiction is heavily incentivized to enact its own QDMTT. By doing so, the foreign government collects the top-up tax itself, effectively intercepting the revenue before it ever crosses the Atlantic.[1][7]

The mechanics of the US tax code complete the transfer. To prevent double taxation, the US allows corporations to claim a foreign tax credit for taxes paid overseas against their domestic GILTI liability. Specifically, the US code permits an 80% credit for foreign taxes paid. When a foreign country levies a QDMTT, the US multinational pays the local treasury and subsequently claims a credit back home.[1][6]

The result is a mechanical diversion of tax revenue. The US Treasury loses the GILTI revenue it would have otherwise collected, while foreign treasuries capture the windfall. Because the OECD framework grants primary taxing rights to the local jurisdiction, and the US tax code credits those foreign payments against domestic liability, the interaction quietly funds foreign governments using the very tax base the US sought to protect.[1][7]

Macroeconomic tax modeling confirms the scale of this shift. Analysis of corporate effective tax rates indicates that widespread foreign QDMTT implementation mechanically reduces US tax revenues by increasing the volume of foreign tax credits claimed by American firms. While some revenue may be recovered if companies choose to on-shore operations to avoid the compliance headache, the direct mechanical effect of the QDMTT is a net outflow of minimum-tax receipts from Washington.[1]

The OECD's administrative guidance has explicitly confirmed this hierarchy. In its technical releases, the OECD classifies GILTI as a blended CFC tax regime and dictates that a QDMTT applies before any blended CFC allocation. This forces US multinationals to calculate their local Pillar Two liability and pay the foreign government in advance of computing their final US GILTI tax.[2][3]

For corporate tax departments, this creates a dual-track compliance nightmare. A company's GILTI payment does not automatically satisfy Pillar Two requirements. Because GILTI is calculated at the aggregate level while Pillar Two requires a jurisdiction-by-jurisdiction assessment, a blended GILTI rate might hit the 15% average globally, but individual subsidiaries could still fall below the floor, triggering local top-up taxes and dual reporting obligations.[5][6]

The Internal Revenue Service is already adapting its enforcement strategies to this new reality. The agency is beginning to use the country-by-country data generated by Pillar Two reporting to cross-reference against traditional US filings. Auditors are looking for discrepancies in transfer pricing and foreign income reporting, meaning the global minimum tax is not just shifting revenue, but also arming the IRS with unprecedented visibility into corporate structures.[6]

The strategic implications for US tax policy are profound. The original intent of the 2017 GILTI legislation was to protect the American tax base and ensure US multinationals contributed their fair share. But by failing to align perfectly with the OECD's subsequent country-by-country standard, the US has inadvertently incentivized foreign nations to raise their own taxes at Washington's expense.[1][7]

Some tax policy analysts argue that the US must overhaul GILTI to make it fully compliant with Pillar Two. This would require moving to a strict country-by-country calculation and eliminating the 20% haircut on foreign tax credits. However, such a move faces steep legislative hurdles in a divided Congress, leaving the current mismatched system in place for the foreseeable future.[1][4]

The uncertainty now centers on exactly how many jurisdictions will aggressively implement and enforce QDMTTs. As more countries adopt the OECD framework and realize the revenue potential of capturing the top-up tax locally, the drain on US GILTI revenues will accelerate. This will eventually force US lawmakers to confront the fundamental incompatibility of their 2017 tax architecture with the new global consensus.[4][7]

Ultimately, the OECD's global minimum tax has transformed international corporate taxation from a race to the bottom into a race to collect the top-up. And under the current rules of engagement, foreign treasuries are winning that race, funded by the very mechanism the United States built to protect its own revenue base.[1][7]