Government and International Responses
Coordinated Global Reforms: OECD and G20
As corporate tax avoidance became a visible global issue, the international community mobilized to adjust the rules of the game. The Organization for Economic Cooperation and Development (OECD), backed by the G20 nations, launched the Base Erosion and Profit Shifting (BEPS) initiative in 2013 to tackle the most egregious loopholes enabling tax avoidance. Over several years, the OECD developed a comprehensive action plan – 15 actions addressing things like hybrid mismatches, harmful tax practices, treaty abuse, transfer pricing, and more – essentially a toolkit for governments to close gaps and coordinate policies. One outcome was that dozens of countries agreed to share more information (for example, through country-by-country reports filed confidentially with tax authorities, showing where multinational profits and taxes are booked) and to tighten up rules in areas such as interest deductibility and patent box regimes. The BEPS project marked the first time so many nations worked together on reforming corporate tax standards, acknowledging that unilateral fixes would not suffice in a globalized economy.
Building on this, in 2021 a landmark international agreement was reached to implement what’s often called BEPS 2.0 – a two-pillar solution aimed particularly at challenges from the digital economy and persistent profit shifting. Under Pillar One, countries would gain new rights to tax a slice of the profits of the largest and most profitable multinationals (especially digital giants) based on where their customers are, rather than where the companies declare their headquarters. Under Pillar Two, countries agreed to enact a global minimum corporate tax rate of 15%. This global minimum tax is a game-changer: it means if a multinational’s income is taxed at less than 15% in any country, its home country (or others in the pact) will impose a top-up tax to bring the rate up to 15%. The idea is to remove the incentive to shift profits to zero-tax havens – there would be no point if the tax will be collected up to 15% somewhere else anyway. By late 2022 and 2023, the European Union, UK, Canada, Japan, and other jurisdictions started passing laws to put the 15% minimum tax into effect for 2024 and beyond. It’s worth noting that 15% is a relatively low bar (many major economies historically had corporate rates well above 20 or 30%), so this is a floor, not a ceiling. However, getting 135+ countries on board was a remarkable diplomatic achievement. If robustly implemented, these measures should recapture some of the revenue lost to profit shifting and make blatant tax-haven plays far less attractive in the future.
European Union: From State Aid to Digital Taxes
The European Union found itself at the forefront of the crackdown on corporate tax avoidance, in part because several high-profile cases involved U.S. tech companies operating in Europe. Lacking a single harmonized tax code, the EU used other tools. The European Commission, acting as the bloc’s competition regulator, started using state aid law to go after sweetheart tax deals granted by member states to specific companies. In this context, “state aid” refers to unfair advantages given by governments that distort competition. The Commission argued that when countries like Ireland or Luxembourg privately negotiated ultra-low tax arrangements with certain multinationals, it was effectively an illegal subsidy. This was the basis for the 2016 decision against Apple, requiring Ireland to collect the €13 billion in back taxes (plus interest) from Apple – a record sum. Similar state aid cases targeted Amazon’s deal with Luxembourg, Starbucks’ deal with the Netherlands, and Fiat’s arrangement in Luxembourg, among others. Not all of these efforts succeeded in court (some were overturned on appeal), but the aggressive approach sent a clear message and, in cases like Apple’s, did force changes. At the same time, the EU pursued legislative fixes: it adopted Anti-Tax Avoidance Directives that required all member countries to implement measures like limits on interest deductions, rules against hybrid mismatches, and controlled foreign company laws (to tax profits parked in tax havens). The EU also pushed for greater transparency, agreeing on rules to make certain multinational tax and profit data public (at least within Europe), aiming to name and shame companies that might be shifting profits.
Another battleground in Europe has been the taxation of digital economy companies, which were often paying very little tax in large EU markets. Frustrated by slow global progress, several European countries decided to implement digital services taxes (DSTs) – essentially, small taxes on the local revenues of big tech firms. France led the way with a 3% digital tax on revenue from online advertising and other digital services, arguing that giants like Google and Facebook should pay something in France even if they funneled their profits to Ireland or Bermuda. Italy, Spain, the UK, and others announced similar measures. The United States opposed these moves (since they primarily hit American companies) and threatened retaliatory tariffs, leading to a temporary truce: these countries agreed to pause or withdraw their digital taxes once an OECD Pillar One solution (the reallocation of taxing rights) comes into effect. However, because the global Pillar One deal has been complex and slow to finalize, the debate over digital taxes still simmers. Meanwhile, the EU has also considered its own broader reforms, such as a proposal for a Common Consolidated Corporate Tax Base (CCCTB) to unify how companies calculate taxable income across Europe and distribute it among member states. While that initiative hasn’t been fully adopted, the direction is clear: European nations want to ensure big corporations pay tax somewhere, rather than slipping through the cracks between countries. The EU is simultaneously pressuring external tax havens by maintaining a blacklist of non-cooperative jurisdictions, though critics point out that some of the world’s biggest tax avoidance facilitators (like some U.S. states or City of London practices) are not addressed in such lists. Still, through a combination of legal enforcement, rule changes, and international negotiation, Europe has been a key player in the global push to rein in avoidance.
The United States: Anti-Inversion Measures and Tax Reform
The United States, home to many of the world’s largest multinationals, has had its own evolving response to corporate tax avoidance. In the early to mid-2010s, a series of high-profile incidents made headlines: companies like Apple, Microsoft, and Caterpillar were hauled before Congress to explain their tax structures; iconic brands like Burger King and Pfizer made moves to technically leave the U.S. for tax purposes. These events galvanized lawmakers. The U.S. Treasury Department under President Obama used regulatory powers to combat inversions in 2014 and 2016, closing off various techniques companies were using to avoid anti-inversion thresholds. For instance, new rules disregarded certain transactions that companies undertook just to make the foreign merger partner appear larger, and cracked down on “spin-offs” or serial acquisitions that skirted ownership limits. The Treasury also targeted earnings stripping by inverted firms – finalizing regulations that would treat some intercompany loans as equity, which meant limiting the tax-deductible interest payments that inverted companies could send to their new foreign parents. While these measures didn’t eliminate the corporate desire to escape U.S. taxes, they did succeed in stopping a few blockbuster deals (as we saw with Pfizer) and generally made inversions more difficult and less beneficial.
The biggest U.S. move came at the end of 2017 with the passage of the Tax Cuts and Jobs Act (TCJA). This legislation fundamentally changed the landscape of corporate taxation for American companies. First, it cut the federal corporate tax rate from 35% – one of the highest in the developed world – to 21%. This reduction alone diminished the gap between the U.S. and low-tax countries, easing the pressure to shift profits or relocate. Second, the U.S. shifted from a pure worldwide tax system to a quasi-territorial system. Previously, American multinationals theoretically owed U.S. tax on all their global earnings, but in practice they could defer U.S. tax on foreign profits as long as those profits stayed offshore (hence the trillions of dollars in accumulated untaxed earnings held overseas by companies like Apple and Google). TCJA ended this deferral by imposing a one-time transition tax on those accumulated earnings (forcing companies to pay tax on past offshore profits) and then exempting future foreign active income from U.S. tax when repatriated. However, to prevent companies from shifting all new profits into tax havens under the new territorial regime, the law introduced a minimum tax on global intangible income, known as GILTI (Global Intangible Low-Taxed Income). GILTI essentially ensures that if a U.S. company’s foreign profits are taxed abroad at less than around 13% (initially 10.5% and set to rise slightly), the U.S. will collect the difference up to that minimum level. TCJA also added the BEAT (Base Erosion and Anti-Abuse Tax), aimed at companies making large deductible payments to overseas affiliates (like royalties or loans) to ensure they pay a minimum tax domestically. Together, these measures curbed some of the advantages of profit shifting: there was less to gain by moving profits to a zero-tax haven if, via GILTI, the U.S. would tax some of it anyway. An unintended effect of the law was that it made the U.S. one of the first major countries to implement a form of minimum tax on foreign earnings, arguably paving the way conceptually for the OECD’s global minimum tax later.
In the years following the 2017 reform, there has been debate and further proposals in the U.S. For instance, the Biden administration in 2021 proposed raising the GILTI minimum rate closer to 21% and calculating it on a country-by-country basis (rather than a blended global average) to align with the global 15% minimum and ensure companies can’t average out low-tax and high-tax income to dodge the top-up. As of 2025, however, any such changes depend on political winds and have not all been enacted. Nonetheless, the era of major U.S. companies paying zero U.S. tax while hoarding foreign profits overseas seems largely over. Many firms brought back earnings after 2017 (though often using them for stock buybacks rather than domestic investment, which stirred its own controversies). Importantly, the number of corporate inversions plummeted; the combination of a lower rate and stricter rules took away the appeal. The U.S. continues to pursue enforcement actions too: the IRS has ongoing disputes with some multinationals over transfer pricing (for example, a multi-billion dollar case against Coca-Cola over how it prices syrup to foreign affiliates). Additionally, the U.S. plays a major role in global tax discussions, pushing for agreements that include consideration of American firms’ competitiveness. In summary, the United States shifted from being seen as somewhat of a haven (due to loopholes and the deferral system) to tightening its tax regime and participating actively in international solutions. The changes illustrate how domestic policy (like slashing the tax rate and adopting anti-abuse rules) can dramatically alter corporate behavior, in this case bringing many profits back onshore and reducing the allure of offshore tax games.