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Donald Trump has ordered officers to attract up retaliatory measures in opposition to international locations making use of “extraterritorial” levies on US multinationals, in a transfer that threatens to set off a worldwide confrontation over tax regimes.
The US president made the transfer in an govt order on Monday night time, withdrawing US assist for a global tax pact agreed on the OECD final yr that enables different international locations to levy top-up taxes on US multinationals.
He added that the “checklist of choices for protecting measures” ought to be drawn up “inside 60 days”, placing signatories to the OECD pact — together with EU member states, the UK, South Korea, Japan and Canada — on discover that Washington intends far-reaching challenges to world tax guidelines.
Trump clashed with European leaders throughout his first time period as president over proposed digital taxes that will have an effect on large US know-how teams equivalent to Apple and Google’s proprietor Alphabet, threatening France at one level with tariffs.
His order on Monday contains investigating “whether or not any overseas international locations will not be in compliance with any tax treaty with the US or have any tax guidelines in place, or are prone to put tax guidelines in place, which can be extraterritorial or disproportionately have an effect on American firms”.
Former UK commerce division official Allie Renison, now at consultancy SEC Newgate, mentioned the transfer confirmed Trump was widening the “financial warfare” web far past tariffs in response to what the US sees as discriminatory practices from different international locations. “Going after their home tax regimes off the again of hitherto world commitments reveals Trump is getting inventive in his struggle to place ‘America First’,” she mentioned.
“The financial warfare web is ever-widening nicely past simply tariffs, and as governments begin to contemplate their response, considerations will now pivot to what else could be caught up in retaliatory crosshairs — and the inevitable prices that go together with it.”
The worldwide deal agreed on the Paris-based OECD in 2021 and partly launched by a number of international locations final yr was anticipated to lift the tax take from the world’s greatest multinationals by as much as $192bn a yr.
Underneath “pillar two” of the OECD deal, if company income have been taxed under 15 per cent within the nation the place the multinational was headquartered, signatories may doubtlessly cost top-up levies. However one a part of the interlocking measures, often called the undertaxed income rule, has lengthy drawn Republican anger, with the celebration labelling it “discriminatory”.
Grant Wardell-Johnson, world head of tax coverage at accountants KPMG, mentioned US responses may embrace imposing further taxes on foreign-owned companies working within the US, or withholding taxes on funds to these jurisdictions.
“Finally we’re seeing worldwide taxation transferring from a multilateral area to a bilateral one based mostly on sturdy unilateral assertions. It’s a new taxation world,” he added.
Alex Cobham, chief govt of the Tax Justice Community, a world marketing campaign group, mentioned Trump’s transfer in impact left the OECD pact “useless within the water”.
Within the two-part memo to the US Treasury secretary, Trump first ordered that commitments made by Joe Biden’s administration to the OECD pact be rescinded — a transfer that had been extensively anticipated — however then broadened the scope of the assault.
Cobham mentioned the potential scope spanned not simply whether or not the OECD pact violated tax treaties, however on the extraterritorial potential of all tax guidelines in all international locations.
“For those who take this assertion at face worth, there’s each probability they arrive again in 60 days and say most international locations of the world and most OECD member international locations ought to be topic to the countermeasures they’re speaking about,” he mentioned.
One senior EU official mentioned Trump’s billionaire know-how entrepreneurs have been pushing him to behave on tax moderately than commerce. “The dialog on tariffs will likely be transactional however the actual struggle will transfer to the place fortunes are at stake and large tech has an curiosity,” they added.
OECD secretary-general Mathias Cormann mentioned: “There have been considerations raised with us by US representatives about numerous features of our worldwide tax settlement.”
He added the organisation would “hold working with the US and all international locations on the desk to assist worldwide co-operation that promotes certainty, avoids double taxation, and protects tax bases”.
The European Fee mentioned it took notice of Trump’s presidential memorandum. “We from our aspect stay dedicated to our worldwide obligations . . . and are open to a significant dialogue with our worldwide companions,” it mentioned.
Further reporting by Laura Dubois