Donald Trump's second term in the White House threatens to spark a global row over taxes, with experts expressing concerns about Republican pledges to punish countries that impose additional duties on US multinational companies.
The head of tax at a major company told the Financial Times that 2025 “could be the year where everything goes to hell and companies get stuck in the middle.”
Imposing tariffs in response to global tax measures “could hamper economic growth by raising companies’ operational costs,” said Alain MacLean, head of the OECD’s Tax Committee, which represents business interests in discussions among the Paris-based group of rich economies. . And increase prices for consumers.”
The differences center around Republican dissatisfaction with a crucial element of the global tax agreement agreed upon at the conference Organization for Economic Cooperation and Development Starting this year, other countries will be allowed to impose additional taxes on US multinational companies.
TrumpThe self-described “tariff guy” has often threatened to use tariffs to ensure the interests of American businesses and families are protected. Since his US election victory, the president-elect has threatened to cancel the free trade agreement with Canada and Mexico and impose 25 per cent tariffs on imports from its neighbours.
Tax experts believe The European Union is in the crosshairs From Republicans, who described a key part of the OECD deal, known as the Taxable Profits Rule and often referred to as the UTPR, as “discriminatory.”
The rule allows countries to increase taxes on the local subsidiary of a multinational group if the multinational company pays less than 15 percent of corporate tax in any other jurisdiction. This rule means that other countries will be able to impose additional taxes on American companies.
“There is a widespread feeling among Republicans that US companies should not pay a comprehensive income tax,” said Aruna Kalyanam, global tax policy officer at EY.
The EU issued the measure under a directive in 2022, but some experts believe the bloc could reach a compromise with Trump on its implementation in exchange for preferential treatment for its exports.
The European Union has a trade surplus with the United States of 158 billion euros, according to European Commission figures.
“Europe has a strong legal culture and the law is the law, but I can imagine a future arrangement between Trump and the EU where the EU would abandon the global safety protocol in order not to get involved in an economic war,” said Valentin Bendlinger, an economist. Senior Consultant at ICON Wirtschaftstreuhand, a tax consulting firm in Austria.
However, others say change is unlikely because it would require approval by all 27 member states.
“Public tax policy is widely implemented, is a powerful bargaining chip, and cannot be easily undone,” said Rasmus Korlin Christensen, an international tax researcher at Copenhagen Business School.
Since 2021, more than 140 OECD countries have been working to implement the landmark tax treaty.
The agreement, which countries agreed in principle, consists of two “pillars”. The first seeks to force the world's largest multinational companies to declare their profits and pay more in the countries where they do business. The second introduces an effective corporate tax rate of 15% as a global minimum, which is designed to limit multinational corporations from changing their domicile in order to pay less tax on their profits.
Influential Republican Congressman Jason Smith in 2023 called the global OECD deal “Biden’s global tax surrender.”
Smith drafted a bill to increase the tax rate on the profits of corporations headquartered in jurisdictions that impose “discriminatory extraterritorial taxes,” against U.S. multinational corporations, including the UTPR. The bill has not been enacted but could be revived under a Trump presidency.
Kalyanam said that activating this law would not be a “heavy burden” on the Republican administration, which controls all branches of government.
Republican senators share Smith's opposition to the OECD deal. A senior congressional aide echoed Smith's language and said the UTPR rule is widely viewed by Republican lawmakers as “discriminatory” and “extraterritorial.”
“In general, Senate Republicans feel the tax deal undermines American interests,” the aide said.
Whether a tax war ensues could depend on whether and how other countries seek to impose the UTPR rule.
To date, GTS has been legislated in jurisdictions including Australia, Canada, Japan, New Zealand, Norway, South Korea, Turkey and the United Kingdom, along with the European Union.
However, some OECD member states, aware of US concerns, have introduced “temporary safe harbor.” This delays the implementation date of the UTPR until 2026 for countries with a statutory corporate tax rate of more than 20 percent. The US interest rate is 21 percent – although 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 provision.
“This causes a lot of anxiety for companies,” said Danielle Rolfs, head of the national tax practice at KPMG in Washington.
Others are optimistic that a settlement can be reached between countries that would also avoid a tax war.
“There will be some kind of deal. That's what Trump likes to do. It's going to be painful all the way,” the multinational tax chief said.
One way states may decide to avoid the potential problem of U.S. multinational corporations becoming subject to the UTPR is to further delay the start date of the implementation rule past 2026.
“I suspect they will get down the road and the UTPR safe harbor will be expanded,” said Grant Wardell Johnson, global tax policy leader at KPMG International. “Many countries don’t want a political battle with the US regarding that.”
