Donald Trump has threatened to double tax rates on foreign citizens and companies in the United States to retaliate against “discriminatory” duties imposed on US multinational companies, in a move that threatens to spark a global showdown over tax systems.
In a memo outlining his “America First” trade policy on Monday, the US president pointed to an obscure 90-year-old provision in the US tax code – Section 891 – that enables him to retaliate against foreign countries by imposing punitive taxes on their countries. Citizens and businesses of America.
The threat came as Trump prepares his administration for a wide-ranging international tax battle, with taxes on digital services against major technology groups and a minimum corporate tax regime brokered by the Organization for Economic Co-operation and Development.
His order, signed Monday, specifically asks the Treasury Secretary to “investigate whether any foreign country subjects U.S. citizens or businesses to discriminatory or extraterritorial taxes” so that it complies with Section 891.
This section states that when the president formally declares such discrimination, the tax rates shall be “doubled in the case of every citizen and corporation of that foreign country”—without the need for congressional approval.
“This (invoking Section 891) is the most extreme option and it's interesting that they're threatening to use it right out of the gate,” said Alex Parker, director of tax legislative affairs at Eddie Bailey. “Based on the way the legislation is worded, it appears to be two-and-done or nothing.”
Trump also issued a separate policy memo withdrawing US support for the OECD's global tax pact last year, which allows other countries to impose additional taxes on US multinational companies.
He added that a “menu of options for protectionist measures” should be drawn up “within 60 days,” putting signatories to the OECD agreement — including EU member states, the United Kingdom, South Korea, Japan and Canada — on notice that Washington intends to move away from… Its scope. – Access to the challenges facing global tax rules.
European leaders clashed with Trump during his first term as president over proposed digital taxes that would affect major US technology groups such as Apple and Google owner Alphabet, and at one point threatened France with tariffs.
Canada also imposed a “digital services tax” last year, which the United States opposed as “discriminatory” against American companies.
Trump's memorandum on the OECD on Monday also includes an investigation into “whether any foreign country that does not comply with any tax treaty with the United States or has any applicable tax rules, or is likely to have applicable tax rules, that are extraterritorial or materially affect… “disproportionate.” American companies.
The trade memos and OECD memos represent “the merging of tax and trade policy, which has really taken hold in this period of the Trump presidency,” said Everett Eisenstat, a partner at Squire Patton Boggs and a former Trump administration official.
“This is likely to target jurisdictions where companies own a lot of their intellectual property such as Ireland, and it is also likely to target what the EU is doing in trying to extract more revenue from US technology companies,” he added.
Allie Rennison, a former UK Commerce Department official who now works at SEC Newgate consultancy, said the move showed Trump was widening his “economic warfare” net beyond tariffs in response to what the US sees as discriminatory practices from other countries. .
The global deal, agreed at the Paris-based Organization for Economic Co-operation and Development in 2021 and partly introduced by several countries last year, was expected to increase taxes on the world's largest multinational companies by up to $192 billion annually.
Under the “second pillar” of the OECD agreement, if corporate profits are taxed at less than 15 percent in the country where the multinational is headquartered, signatories are likely to impose an additional fee. One of the interlocking measures has long been drawn up, known as the non-taxable earnings rule Republican angerThe party described it as “discriminatory.”
Grant Wardell Johnson, global head of tax policy at accountants KPMG, said U.S. responses could include imposing additional taxes on foreign-owned companies operating in the United States, or withholding taxes on payments to those jurisdictions.
“Ultimately, we are seeing international taxation move from a multilateral sphere to a bilateral sphere based on strong unilateral assertions. It is a new tax world,” he added.
A senior European Union official said Trump's billionaire tech entrepreneurs were pressuring him to act on taxes rather than trade. They added: “The talk about tariffs will be about transactions, but the real battle will move to where fortunes are at stake and where big technology companies have a stake.”
“US representatives have raised our concerns about various aspects of our international tax agreement,” said Mathias Cormann, Secretary-General of the Organization for Economic Co-operation and Development.
He added that the organization “will continue to work with the United States and all countries at the table to support international cooperation that enhances certainty, avoids double taxation, and protects tax rules.”
Valdis Dombrovskis, the European Union's economic commissioner, said that while the European Commission “regrets” the tax announcement, it is interested “in taking the time to discuss this issue with the new US tax administration.”
Additional reporting by Paula Tama in Brussels and Ilya Gridnev in Toronto
