Trump Threatens Global Tax War
Tensions are escalating in the world of international taxation as President Trump has taken a hardline stance against other countries’ tax policies. In a move that could spark a global economic showdown, Trump has ordered his administration to develop retaliatory measures against nations implementing what he deems “extraterritorial” levies on US multinational corporations.
This decisive action, outlined in an executive order issued monday night, sees the US withdrawing its support for a crucial global tax agreement reached at the Organisation for Economic Co-operation and Progress (OECD) last year. This pact, hailed as a landmark achievement, aimed to ensure fairer taxation of multinational companies by allowing countries to impose supplementary taxes on profits earned within their borders.Trump’s order sets a 60-day deadline for compiling a complete list of potential countermeasures, putting meaningful pressure on signatories of the OECD agreement, including EU members, the UK, Canada, Japan, and South Korea. This move signals a potential crackdown on global tax governance and a foreshadowing of far-reaching challenges to existing international tax rules.
This isn’t the first time Trump has clashed with European leaders over taxation. During his first term, he engaged in a heated exchange with France regarding proposed digital taxes targeting tech giants like Alphabet (Google’s parent company) and Apple. He even threatened to impose tariffs on French goods, a stark reminder of his willingness to use trade as a weapon in these financial conflicts.
The potential ramifications are vast, notably for Ireland, which serves as a regional base for numerous US multinational corporations. This country could find itself squarely in the crosshairs of these emerging trade tensions.
The executive order mandates a review of foreign tax policies to identify any inconsistencies with US tax treaties or rules deemed “extraterritorial” or detrimental to American companies.
Allie Renison, a former UK trade department official now with consultancy SEC Newgate, believes this escalation marks a widening of the “economic warfare” net far beyond tariffs. “Going after their domestic tax regimes off the back of hitherto global commitments shows Trump is getting creative in his fight to put ‘United States First’,” she stated.
Adding to the complexity, Renison warns that the global response could encompass a wide range of retaliatory measures. “As governments start to consider their response, concerns will now pivot to what else might be caught up in retaliatory crosshairs – and the unavoidable costs that go with it,” she added.
The OECD agreement, finalized in Paris in 2021 and partially implemented last year, aimed to bolster global tax revenues from multinational corporations by an estimated $192 billion (€185 billion) annually.
This agreement, comprised of two main pillars, aimed to ensure fairer taxation of multinational profits. “Pillar two” allowed signatories to levy top-up taxes on profits earned within their jurisdictions if they fell below a minimum 15% tax rate in the company’s parent country. However, one aspect of this plan, known as the Undertaxed Profits Rule (UTPR), has been a point of contention for Republicans, who criticize it as discriminatory.
Grant Wardell-Johnson, global head of tax policy at KPMG, suggests possible US responses could include imposing additional taxes on foreign-owned businesses operating within the US or withholding taxes on payments to countries deemed to be engaging in unfair practices.
This latest development signifies a high-stakes struggle over global taxation, with perhaps profound consequences for the international economic order.
Tax showdown: Trump Threatens Global Tax Order
President Trump’s recent actions cast a shadow on international tax cooperation, signaling a potential shift in global tax practices. He issued a Presidential memorandum instructing his Treasury Secretary to withdraw the previous administration’s commitments to an OECD agreement designed to overhaul global corporate taxation.
What started as anticipation of the revocation of existing pledges quickly escalated when Trump broadened his attack, expressing concerns not merely about treaty violations, but aiming to challenge the extraterritorial reach of all tax rules, globally. This bold move by Trump suggests an intent to establish a unilateral framework for taxation.
Alex Cobham, Chief Executive Officer of the international campaign group, Tax Justice Network, characterized this as effectively delivering a deathblow to the OECD pact.
“If you take this statement at face value, there’s every chance they come back in 60 days and say most countries of the world and most OECD member countries should be subject to the counter-measures they’re talking about,” Cobham warned, highlighting the potential ramifications of Trump’s assertions for international tax principles.
Informed sources suggest tech giants, predominantly American, stand behind Trump’s aggressive stance, pushing tax reform over traditional trade disputes.
“The conversation on tariffs will be transactional,” confided a senior EU official. “But the real fight will move to where fortunes are at stake, and Big Tech has a vested interest”
Mathias Cormann, OECD Secretary-General, acknowledged recent concerns raised by US representatives, stating, “There have been concerns raised with us by US representatives about various aspects of our international tax agreement.” Yet, Cormann emphasized the institution’s unwavering commitment to supporting international cooperation towards achieving tax certainty, avoiding double taxation, and safeguarding tax bases.
The European Commission, taking note of Trump’s actions, reaffirmed its unwavering commitment to existing international obligations while expressing openness toward constructive dialog.
Will Trump’s actions trigger a fundamental restructuring of global taxation or merely initiate temporary turbulence?
only time will reveal.
What are the potential retaliatory measures that signatories of the OECD agreement might take in response too President Trump’s executive order on foreign tax policies?
Archyde Interview: Crackdown on Global Tax Governance?
At Archyde, we’re committed to bringing you expert insights into the fast-moving world of international trade adn finance. Today, we’re joined by prominent international tax lawyer, Dr. dripping the complexities of the recent executive order by President Trump, which could spark a global tax war. Dr. Patterson is a widely recognized figure in his field, having advised numerous governments and multinational corporations on tax matters. Welcome, Dr. Patterson.
Dr. Patterson: Thank you for having me. It’s a critical time for global tax governance, and I’m glad to contribute to the conversation.
Archyde: Let’s dive right in. President Trump has ordered a review of foreign tax policies, potentially leading to retaliatory measures against countries implementing what he deems “extraterritorial” levies on US multinationals. What’s your take on this?
Dr.Patterson: This executive order is indeed a significant development. Trump’s administration is essentially withdrawing its support for the OECD agreement, which aims to ensure a more equitable taxation of multinational corporations. by deeming certain tax policies “extraterritorial,” Trump is effectively questioning the sovereignty of other nations to impose taxes on international businesses operating within their borders.
Archyde: This isn’t entirely surprising, given Trump’s history of clashing with European leaders over taxation. how does this escalation change the landscape?
Dr. Patterson: This action certainly widens the net of Trump’s “economic warfare,” as allie Renison put it.Previously, we saw tension around digital taxes and tariffs. Now, Trump is targeting domestic tax regimes, suggesting a more aggressive stance on global tax governance.
Archyde: Ireland, with its low corporate tax rate, has long been a hub for US multinationals. How might this development impact Dublin?
Dr. Patterson: Indeed, Ireland could find itself in the crosshairs. Many US companies have established regional bases there, attracted by its corporate tax rate. The OECD agreement’s Pillar Two sought to address such low-tax regimes.With Trump’s order, Ireland, along with other countries with competitive tax structures, might face pressure or retaliation.
archyde: That brings us to Pillar Two and the Undertaxed Profits Rule (UTPR). What are the contentious aspects of this rule?
Dr. Patterson: The UTPR is designed to address situations where a multinational company shifts profits to low-tax jurisdictions. Critics, including Trump’s administration, argue that the rule could excessively burden businesses with complex compliance requirements and double taxation. Moreover, some see it as an overreach of power by the OECD agreement.
Archyde: Lastly, what retaliatory measures might we see from signatories of the OECD agreement?
Dr. Patterson: A wide range of retaliatory measures could be on the table. These could include reciprocity measures, where countries mirror the US’ actions, or even WTO challenges. Some countries might also reconsider their taxation policies, making it more difficult for US multinationals to operate there. It’s crucial to remember that any retaliation could have unintended consequences, further convoluting international trade and finance.
Archyde: That’s a sobering thought indeed. Dr. Patterson,thank you for your illuminating insights. We’ll continue to monitor this developing story on Archyde.
Dr. Patterson: My pleasure.
