In January, U.S-based multinationals won an exemption from Pillar 2’s global minimum tax under the OECD’s “side-by-side” package. At the time, this exemption was framed as both a concession to American exceptionalism and a harbinger of further fragmentation in the OECD’s multilateral BEPS project.
Well, the other shoe has dropped. Brazil has requested its own side-by-side exemption. Will other countries follow? More below the fold.
It’s not surprising that January’s side-by-side package upset whatever hard-won equilibrium emerged around Pillar 2’s global minimum tax. As Ruth Mason has argued, the BEPS project was more than “a mere technical project to close tax loopholes“; it also is a political project that reconfigured the players, the agenda, and the tools of international tax law. The side-by-side package presents the converse dynamic. It’s more than a mere political accommodation to the United States. Intrinsic to the side-by-side package is a technocratic roadmap for other countries—not the direct political beneficiaries in January—to claim exemptions from Pillar 2’s ordinary enforcement architecture.
Based on Bloomberg tax reportage, Brazil’s exemption claim appears to be rooted deeply in the side-by-side package’s technical roadmap. Brazil’s nominal corporate tax rate comfortably clears the 20% minimum for exemption, and Brazil adopted a corporate minimum tax in 2025—before the January 1, 2026 cutoff under the side-by-side package. And Brazil, unlike most European countries, taxes multinationals’ worldwide income through a comprehensive CFC regime. Moreover, Brazil claims to have “a broad set of measures designed to address base erosion and profit shifting risks.” The OECD’s review, of course, will examine these measures holistically and as-applied to determine whether Brazil’s tax system meets the side-by-side package’s formal requirements.
The resolution of these technical questions is high-stakes, and the public choice dynamics are potentially difficult. Brazil’s move forces other countries—India and China, in particular—to make strategic decisions about whether to pile on or wait and see. And these decisions are unlikely to be linear or uncorrelated. Each new request changes the incentives facing the next country, increasing the odds of tipping points and the potential for rapid change—almost certainly in the direction of further defections from full compliance with Pillar 2. Private-sector pressures involve both total tax liability and compliance burdens, which exacerbates tensions between national tax systems and Pillar 2’s multilateral design. Fragmentation is no longer hypothetical, and even collapse is possible.
But the flip side is that Brazil’s exemption request opens the door for another kind of intellectual pluralism in domestic tax instruments—and renewed tax competition of the type that Pillar 2 promised to curtail. This process echoes Lily Faulhaber’s idea of “international legitimation,” where BEPS delegates used the multilateral process to build support—at home and abroad—for previously marginalized policy ideas. Here, the dynamic is different but related. Brazil is (unilaterally) constructing its existing domestic tax law, as shaped by the BEPS process, to match the side-by-side package’s criteria. If the OECD grants Brazil’s exemption request (multilaterally), other countries may seek alternative domestic approaches (or make alternative arguments using their existing legal rules) to achieve a similar outcome. The twist is that these policy positions presumably reduce multinationals’ compliance, transparency, and tax burdens, rather than increase them.
To some extent, however, a focus on deviations from the legal core of Pillar 2 obscures the overall purpose of the BEPS project. The ultimate question isn’t whether every country except the United States adopts Pillar 2 full-bore; it’s whether the endpoint of this process has the effect of curtailing base erosion and profit shifting. The current moment is transparently transitional, and, at this point, things could break either way.
More broadly, the side-by-side package emphasizes a longstanding tension in international tax law. From the 1920s compromise through the early 2000s, the international tax regime remained remarkably stable in a legal sense, even as the global economy transformed (multiple times) and even as commentators adduced cracks and flaws. Moreover, the BEPS process has yielded surprising consensus, even as it disrupted the longstanding decentralized network of bilateral treaties.
In international tax law, durability and fragility often coexist. Brazil’s exemption request may show whether Pillar 2 can absorb that tension—or whether the process of accommodation under the side-by-side package will unravel the broader project.
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