Donald Trump’s second term in the White House threatens to spark a global row over taxes, with experts expressing concern over Republican pledges to punish countries that impose additional tariffs on US multinationals.
The head of tax at a major multinational company told the Financial Times that 2025 “could be the year where everything goes to hell and businesses get caught in the middle”.
Alan McLean, chairman of the Business at OECD tax committee, which represents business interests in discussions between the Paris-based group of rich economies, said imposing tariffs in response to global tax measures “could threaten economic growth by increasing operating costs for businesses and raising prices for consumers”.
The disputes center on Republican dissatisfaction with a key element of the global tax pact agreed on OECD which, starting this year, will allow other countries to impose additional taxes on American multinationals.
Trumpa self-described “tariff man,” he has often threatened to resort to tariffs to ensure the interests of American businesses and households are protected. Since winning the US election, the president-elect has threatened to tear up the free trade agreement with Canada and Mexico and impose 25 percent tariffs on imports from his neighbors.
Tax experts believe The EU is in the crosshairs Republicans have labeled a key part of the OECD agreement, known as the undertaxed profits rule and often called the UTPR, “discriminatory.”
The rule allows states to raise taxes on a local subsidiary of a multinational group if the multinational company pays less than 15 percent of its profits in any other jurisdiction. The rule would mean that other countries could impose additional taxes on American companies.
“There is a broad sense among Republicans that US companies should not have to pay the UTPR,” said Aruna Kalyanam, head of global tax policy at EY.
The EU passed the measure under the 2022 directive, but some experts believe the bloc could reach a compromise with Trump on its implementation in exchange for favorable treatment for its exports.
The EU has a trade surplus with the US of 158 billion euros, according to data from the European Commission.
“Europe has a strong legal culture and the law is the law, but I can imagine a future deal between Trump and the EU in which the EU abandons the UTPR in order not to be involved in an economic war,” said Valentin Bendlinger, senior consultant at ICON Wirtschaftstreuhand, a tax consulting company in Austria.
However, others say the change is unlikely as it would require the agreement of all 27 member states.
“[The UTPR is] widely applied, a powerful bargaining chip and not easily reversed,” said Rasmus Corlin Christensen, an international tax researcher at Copenhagen Business School.
From 2021, more than 140 countries are working in the OECD to implement the key tax agreement.
The agreement, with which the countries agreed in principle, consists of two “pillars”. The first seeks to force the world’s largest multinationals to report profits and pay more in the countries where they operate. Another introduces a global minimum effective corporate tax rate of 15 percent, designed to limit multinational companies that relocate to pay less tax on their profits.
Influential Republican congressman Jason Smith in 2023 described the OECD’s global deal as “Biden’s global tax surrender.”
Smith drafted legislation to increase the corporate income tax rate of companies based in jurisdictions with “extraterritorial and discriminatory taxes,” against US multinationals, including the UTPR. The bill has not passed, but could be revived under a Trump presidency.
It would not be a “heavy burden” for a Republican administration, which controls all branches of government, to enact it, Kalyanam said.
Smith’s opposition to the agreement with the OECD is shared by Republican senators. One senior congressional aide echoed Smith’s language and said Republican lawmakers generally view the UTPR rule as “discriminatory” and “extraterritorial.”
“In general, Senate Republicans see the tax treaty as undermining U.S. interests,” the aide said.
The question of whether there will be a tax war could depend on whether and in what way other countries will try to implement the UTPR rule.
So far, the UTPR has been adopted alongside the EU in jurisdictions including Australia, Canada, Japan, New Zealand, Norway, South Korea, Turkey and the UK.
However, some OECD countries aware of US concerns have introduced a “temporary safe harbor”. This delays the date of application of the UTPR until 2026 for countries with a statutory corporate tax rate above 20 percent. The U.S. has a rate of 21 percent — though Trump has proposed cutting it to just 15 percent for domestic manufacturers.
Not all jurisdictions that have enacted the UTPR have introduced a safe harbor clause.
“It causes a lot of pain for companies,” said Danielle Rolfes, head of KPMG’s national tax practice in Washington.
Others are optimistic that a compromise could be found between the countries that would also prevent a tax war.
“There will be some kind of agreement. That’s what Trump likes to do. However, it will be painful along the way,” said the head of the multinational tax administration.
One way countries could choose to avoid the potential problem of US multinationals subject to the UTPR is to further delay the implementation rule’s effective date to 2026.
Grant Wardell-Johnson, head of global tax policy at KPMG International, said: “My guess is that they will end it and the UTPR safe harbor will be extended. Many countries would not want a political fight with the US over this.”
