The reaction to President Trump’s decision to pull out of global tax agreement negotiations started by his predecessor has been a mixed bag across the international tax community, but foreign officials opted to leave the door open for future work with the new administration.
‘No force or effect.’ Among the slew of executive orders signed by Trump on his first day back in the White House was a presidential memorandum stating that any agreements between the Organization for Economic Cooperation and Development (OECD) and the Biden administration on the United States’ implementation of the “Global Tax Deal” are off the table.
“Because of the Global Tax Deal and other discriminatory foreign tax practices, American companies may face retaliatory international tax regimes if the United States does not comply with foreign tax policy objectives,” the order stated. “This memorandum recaptures our Nation’s sovereignty and economic competitiveness by clarifying that the Global Tax Deal has no force or effect in the United States.”
Although the order does not specifically mention it by name, it refers to the 15% global minimum tax known as “Pillar Two” of the OECD framework based on the Global Anti-Base Erosion Model Rules. The tax is intended to curtail the so-called race to the bottom in which large multinational corporations vie to stow profits in no- or low-tax jurisdictions.
So far, about 140 countries have signed on with the OECD plan. Some already have legislation in place or are considering formal adoption of the global minimum tax. Biden’s Treasury Department sought to nudge the U.S. Tax Code to accommodate Pillar Two in the hopes that Congress would pass an incorporating bill, which never materialized.
During Trump’s first term, Congress established the global intangible low-tax income, or GILTI, regime. Skeptics of the OECD framework feared U.S. companies would face double taxation and suffer an unnecessary economic disadvantage against rival nations like China when GILTI is already part of U.S. law.
The Trump administration, per the order, will consider its options for retaliating against foreign jurisdictions found to be out of compliance with U.S. tax treaties or favoring policies that would hinder U.S. businesses.
International response. OECD Secretary General Matthias Cormann, in a statement shared with Checkpoint, responded to Trump’s order by acknowledging that there “have been concerns raised” by U.S. representatives “about various aspects” of the global tax agreement.
Nonetheless, the OECD “will keep working with the U.S. and all countries at the table to support international cooperation that promotes certainty, avoids double taxation, and protects tax bases,” said Cormann.
Valdis Dombrovskis, an executive vice president at the European Commission, touched on Trump’s order at an Economic and Financial Affairs Council news conference in Brussels. “We remain committed to our international obligations undertaken over the last years and open to meaningful dialog with our international partners,” he said.
Dombrovskis added that “while the commission regrets the content of the memorandum, we trust that it’s worth taking the time to discuss these matters with the new U.S. tax administration in order to better understand their asks and explain also our position.”
Republican approval. Congressional Republicans praised Trump for the move. House Ways and Means Chair Jason Smith (R-MO) in a statement said Trump was right to “reject the OECD framework that would have destroyed U.S. jobs, forfeited an estimated $120 billion in tax revenues, and enhanced China’s competitive advantage.”
The estimated cost figure originated from an analysis by the Joint Committee on Taxation, which considered multiple scenarios, including Pillar Two’s general adoption except in the U.S.
Smith and a host of Republican colleagues on the Hill previously wrote a letter to Cormann last September to voice their concerns over the “fundamentally flawed” undertaxed profits rule, one of the top-up components of the Pillar Two minimum tax.
“Ultimately, the UTPR will target U.S. workers and businesses by allowing foreign governments to claw back important U.S. tax incentives (e.g., tax credits for research and development and low-income housing) and attack the operations of American companies in third-party jurisdictions,” read the letter, which went on to advocate in favor of GILTI and invited other countries to adopt GILTI-like rules of their own.
Representative Ron Estes (R-KS) also lauded Trump’s memorandum yesterday. Taking to social media, Estes said he was “pleased” as a “fierce opponent” of the global minimum tax, that the president maintained “only Congress has the authority to enter into such deals.”
Policy orgs weigh in. Zorka Milin, policy director at the FACT Coalition, objected to the decision. “The saber-rattling move by the incoming administration is regrettable and risks setting back the fight against the global race to the bottom on tax,” Milin told Checkpoint.
“Paradoxically, it is also a gift to China,” she argued, “because the challenged provision is meant to hold accountable foreign companies from non-participating countries, such as China. Meanwhile, it threatens an unprecedented doubling of U.S. taxes on companies and individuals from countries that are implementing the global tax agreement, mostly our European allies.”
Milin said it is “too soon” to gauge the “practical impact” the order will have, which will partly depend on responses from other governments.
The Cato Institute, however, welcomed Trump’s executive action as “a good start” for breaking away from the OECD altogether. “The best way to undermine the OECD Global Tax Deal is by taking active steps to make the United States the most attractive place in the world to invest, build, and expand businesses,” the organization posted on its blog.
“Instead of defaulting to retaliatory tariffs or other targeted tax hikes, Congress and the administration can stop the Global Tax Deal by defunding the OECD, enforcing existing treaties, and cutting taxes on businesses investing in America,” the Cato Institute suggested.
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