Unlock the White House Watch newsletter for free
Your guide to what the 2024 US election means for Washington and the world
Donald Trump has ordered officials to draw up retaliatory measures against countries that apply “extraterritorial” levies on US multinationals, in a move that threatens to spark a global row over tax regimes.
The US president made the move in an executive order on Monday evening, withdrawing US support for a global tax pact agreed on OECD last year that allows other countries to levy additional taxes on US multinationals.
He added that a “list of options for safeguards” should be drawn up “within 60 days”, putting signatories to the OECD pact – including EU member states, the UK, South Korea, Japan and Canada – on notice that Washington intends far-reaching challenges to global tax rules.
Trump clashed with European leaders during his first term as president over proposed digital taxes that would affect major US tech groups such as Google owner Alphabet and Apple, at one point threatening France with tariffs.
His order on Monday includes an investigation into “whether foreign countries are in compliance with any tax treaty with the US or have tax rules in effect, or are likely to impose tax rules that are extraterritorial or disproportionately affect US companies.”
Former UK Trade Department official Allie Renison, now at SEC consultancy Newgate, said the move showed Trump was spreading the net of “economic warfare” far beyond tariffs in response to what the US sees as discriminatory practices by other countries. “The prosecution of their domestic tax regimes based on past global commitments shows that Trump is getting creative in his fight to put ‘America first,'” she said.
“The web of economic warfare is increasingly spreading far beyond the tariffs themselves, and as governments begin to consider their response, concerns will now turn to what else might be caught up in the vengeful cross-cutting – and the inevitable costs that go with it.”
The global deal, agreed at the Paris-based OECD in 2021 and partially implemented by several countries last year, is expected to increase tax revenues from the world’s biggest multinationals by up to $192 billion a year.
Under the “second pillar” of the OECD agreement, if corporate profits were taxed below 15 percent in the country where the multinational is headquartered, signatories could potentially levy additional taxes. But one piece of the related measure, known as the Undertaxed Profits Rule (UTPR), has long attracted Republicans angerand the party labeled him as “discriminatory“.
Grant Wardell-Johnson, global head of tax policy at accountants KPMG, said US responses could include imposing additional taxes on foreign-owned companies operating in the US or withholding taxes on payments to those jurisdictions.
“Ultimately, we see international taxation moving from a multilateral domain to a bilateral one based on strong unilateral claims. It is a new world of taxation,” he added.
Alex Cobham, chief executive of the Tax Justice Network, an international campaign group, said Trump’s move effectively left the OECD pact “dead in the water”.
In a two-part memo to the U.S. Treasury secretary, Trump first ordered that the Biden administration’s commitments to the OECD pact be rolled back — a move that had been widely expected — but then broadened the scope of the attack.
Cobham said the potential scope is not just about whether the OECD pact violates tax treaties, but also the extraterritorial potential of all tax rules in all countries.
“If you take this statement at face value, chances are they’ll come back in 60 days and say that most countries in the world and most OECD countries should be subject to the countermeasures they’re talking about,” he said.
One senior EU official said Trump’s billionaire tech entrepreneurs are pushing him to act on taxes, not trade. “The tariff conversation will be transactional, but the real fight will move to where wealth is at stake and where big tech has an interest,” they added.
Mathias Cormann, OECD Secretary General, said: “US representatives have expressed concerns to us about various aspects of our international tax treaty.”
He added that the organization “will continue to work with the US and all countries around the table to support international cooperation that promotes security, avoids double taxation and protects tax bases.”
