Last updated: 27 Jan 2025 02:00 Posted in:
US president Donald Trump has signalled his intention to pull the US out of the OECD’s Global Minimum Tax (GMT) initiative.
In a presidential memo, Trump said he would recapture “our nation’s sovereignty and economic competitiveness by clarifying that the Global Tax Deal has no force or effect in the United States”.
The OECD GMT ensures multinational companies with revenues above £610 million are subject to a 15% effective minimum tax rate of corporate income tax in large parts of the world. The OECD GMT (sometimes referred to as Pillar Two) was agreed by more than 135 OECD member jurisdictions in October 2021, including the EU, Japan, Canada, South Korea and the UK.
Last year the OECD estimated the GMT would almost halve global profit shifting – from £566bn to £289bn – and increase corporation tax revenues by as much as £156bn per year.
In a separate move, the US president has signalled plans to question the right of any country to tax US multinational corporations and is threatening to take countermeasures against countries that do not, in effect, cede their tax sovereignty over US multinationals operating within their own borders.
In a presidential memorandum issued hours after taking office, President Trump signalled plans to turn back US tax policy to a pre-League of Nations standing – to a time when companies could only be taxed by the imperial power they came from, regardless of where they were making their money. Trump also ordered the US Treasury to prepare ‘protective measures’ against any countries exercising tax rules that the new US administration sees as exercising ‘extraterritorial’ or ‘disproportionate’ impact on US-headquartered multinationals.
Alex Cobham, chief executive at the Tax Justice Network, said: “The US will now investigate the tax rules of every other country in the world, and is threatening sanctions for any measure that they view as ‘extraterritorial’ or ‘disproportionately’ affecting US companies. Republican lawmakers have already made clear that they view most current proposals as falling foul of these criteria – and that means that all OECD member countries and many others are now under threat.
“Since 2013, the focus of international reforms has been to curb the ability of multinational companies to shift their taxable profits away from the places that they are actually doing business and making money. The scale of profit shifting has grown steadily due to the OECD’s comprehensive failure – but at least they can say they tried. The Trump administration is now threatening anyone who seeks to claim their fair taxing rights over US multinationals, including the OECD itself.
“Some business leaders may have hoped that Trump would save them money by preventing effective tax reforms. But they should be careful what they wish for: this reckless step will raise tax uncertainty to unprecedented heights.
“Policymakers of other OECD countries, including the EU and UK, face a stark choice. They can give up any hope of exercising their taxing rights over major multinationals for at least four more years, and simply try to avoid a fight with the new bully. Or they can join together and work to defend each country’s tax sovereignty, by committing to ambitious and inclusive progress in the negotiations of the UN Framework Convention on International Tax Cooperation which begin in just two weeks. Only in collective action is there a chance to address the deep failures of international tax rules, and at the same time resist the bullying of the new US administration.”
