President Donald Trump on January 20, 2025 -- his first day in office -- issued a memorandum to clarify that the “Global Tax Deal” has no force or effect in the U.S., and directing the secretary of the Treasury and the U.S. permanent representative to the OECD to notify the global organization that any commitments made by the Biden administration regarding the global tax deal have no force or effect in the U.S. absent an act by Congress adopting the relevant provisions of the deal.
The memorandum also directs the secretary, in consultation with the U.S. Trade Representative, to investigate whether any foreign countries are not in compliance with any tax treaty with the U.S., or have any tax rules in place, or are likely to put tax rules in place, “that are extraterritorial or disproportionately affect American companies.”
Moreover, the memorandum instructs the Treasury secretary, through the Assistant to the President for Economic Policy, to compile a list of options for protective measures or other actions the U.S. should adopt in response to such noncompliance or tax rules. This list is to be delivered to the president in the next 60 days.
Two days later, House Ways and Means Committee Chair Jason Smith, R-Mo., introduced the Defending American Jobs and Investment Act (H.R. 591) in a press release. The bill would impose “reciprocal taxes applicable to any foreign country that decides to target Americans with unfair taxes under the OECD’s global minimum tax,” according to the press release. In addition, existing IRC section 891 provides authority to the President to impose double taxation on taxpayers who are resident in jurisdictions that discriminate against or impose extraterritorial taxes against US taxpayers.
OECD Secretary General Matthias Cormann, in a statement shared with the press, responded to Trump’s memorandum by stating that the OECD “will keep working with the U.S. and all countries at the table to support international cooperation that promotes certainty, avoids double taxation, and protects tax bases.”
The global tax deal referenced in the memorandum alludes to Pillar Two of the OECD’s two-pillar framework for addressing the tax challenges arising from the digitalization of the economy and may be directed at aspects of Pillar One as well. The global anti-base erosion (GloBE) model rules issued under Pillar Two are designed to ensure that large multinational companies pay a minimum tax of 15% on taxable profit in each jurisdiction in which they operate. While more than 56 jurisdictions have enacted domestic legislation implementing Pillar Two, including all EU member states, the U.S. Congress has not adopted similar legislation.
Next Steps
Based on prior Republican congressional letters to the OECD, the main objections to Pillar Two relate to the UTPR. The OECD has provided transition relief under the Pillar Two UTPR to U.S.-parented multinationals until 2026. Meanwhile, several OECD countries have fully implemented the UTPR in their domestic tax laws and many more have indicated their intention to do so. Therefore, a looming conflict between U.S. tax law and the OECD Pillar Two regime would need to be addressed during 2025 to avoid a conflict of laws applicable to U.S.-parented multinationals. The UTPR is in effect for U.S. and non-U.S.-parented groups; however, the ultimate parent entity’s jurisdiction may be excluded from any top-up tax if it benefits from the UPTR safe harbor. So, for example, U.S. MNEs with, say, South American or Central American subsidiaries will need to apply the UPTR in 2025
With respect to Pillar One, negotiations have been stalled at the OECD Inclusive Framework and Pillar One has not yet been implemented in any member country, except to a limited extent. The IRS in Notice 2025-4 indicated that the “Amount B” determined under Pillar One principles can be used as a safe harbor by U.S. distribution, supplier, and marketing subsidiaries of foreign-parented multinationals starting in 2025, to be further defined by regulation. The overall failure of Pillar One to advance seems likely to result in the re-proposal of digital service taxes (DSTs), directed at U.S. technology and media multinationals by U.S. trading partner jurisdictions. DSTs are already in force in some countries. The adoption of such DSTs will also result in friction with the U.S. Treasury and Congress, based on their previously expressed view that many such taxes violate existing U.S. tax treaties and can be deemed (like the Pillar Two UTPR) to be “extraterritorial.”
Multinational groups that are within scope of Pillar One and/or Pillar Two should carefully consider these international tax developments with their advisors and monitor any impact on tax planning and tax compliance.
Please visit BDO’s International Tax Services page for more information on how BDO can help.