Donald Trump’s return raises prospect of global tax war

Donald Trump’s second term in the White House threatens to spark a global row over taxes, with experts raising concerns about Republican pledges to punish countries that impose additional tariffs on US multinationals.

The head of tax at one major multinational told the Financial Times that 2025 “could be the year things go to hell in a handbasket and businesses get caught in the middle”.

Alan McLean, chairman of the OECD’s Tax Committee, which represents business interests at the Paris-based group of rich economies, said imposing tariffs in response to global tax measures “could hamper economic growth by raising operating costs for businesses and raising prices for consumers.” “.

The disputes center on Republican discontent over a key element of the agreed global tax treaty. OECD: that starting this year, other countries will be allowed to collect additional taxes from US multinational companies.

TrumpThe self-described “tariff” has often threatened to impose tariffs to ensure that the interests of U.S. businesses and households are protected. on

Tax experts believe The EU is at a crossroads Republicans have blasted a key part of the OECD deal, known as the undertax profits rule and often referred to as the UTPR, as “discriminatory.”

The rule allows countries to increase taxes on a multinational group’s domestic subsidiary if the multinational pays less than 15 percent of corporate tax in any other jurisdiction.

“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 adopted the measure in 2022 under the directive, but some experts believe the bloc could compromise with Trump on its implementation in exchange for favorable treatment of its exports.

According to the data of the European Commission, the EU has a trade surplus of 158 billion euros with the USA.

“Europe has a strong legal culture, and the law is the law, but I can imagine a future agreement between Trump and the EU, where the EU will abandon the UTPR in order not to get involved in an economic war,” says Valentin Bendlinger, a tax consultant in Austria Senior consultant at ICON Wirtschaftstreuhand.

However, others say a change is unlikely because it would require the agreement of all 27 member states.

“[The UTPR is] a widely implemented, powerful bargaining chip, and it cannot be easily rolled back,” said Rasmus Corlin Christensen, an international tax researcher at Copenhagen Business School.

Since 2021, more than 140 countries have been working towards the implementation of a landmark tax agreement in the OECD.

The deal, to which the countries have agreed in principle, consists of two “pillars”. The first seeks to force the world’s largest multinationals to declare profits and pay more in the countries they do business in. The second introduces a 15 percent global minimum effective corporate tax rate designed to limit multinationals that relocate to less to pay tax on their profits.

Influential Republican congressman Jason Smith has described the 2023 OECD global deal as “Biden’s global tax giveaway.”

Smith drafted a bill to raise corporate profits with “extraterritorial and discriminatory tax” powers against US multinationals, including the UTPR.The bill failed, but could be revived under a Trump presidency.

It won’t be a “heavy lift” for a Republican administration that controls all branches of government, Kalyanam said.

Republican senators split on Smith’s OECD deal One senior congressional aide responded to Smith’s language, saying the UTPR rule is widely viewed by Republican lawmakers as “discriminatory” and “foreign.”

“Overall, Senate Republicans feel the tax deal undermines US interests,” the aide said.

The question of whether a tax war will break out may depend on whether and how other countries seek to apply the UTPR rule.

So far, the UTPR has been enacted in jurisdictions including Australia, Canada, Japan, New Zealand, Norway, South Korea, Turkey and the UK, as well as the EU.

However, some OECD countries, heeding US concerns, have introduced a “temporary safe harbor.” This delays the implementation date of the UTPR until 2026 for countries with a statutory corporate tax rate above 20 percent has a 21 percent rate, though Trump has proposed cutting it to 15 percent for domestic manufacturers.

Not all jurisdictions that have adopted the UTPR have implemented the safe harbor provision.

“It creates a lot of frustration for companies,” said Daniel Rolfes, head of KPMG’s Washington, D.C. national tax practice.

Others are optimistic that a compromise can be found between the countries that would also prevent a tax war.

“There will be some kind of deal. That’s what Trump likes to do. However, it’s going to be painful down the road,” said the multinational tax chief.

One way countries may choose to avoid the potential problem of US multinationals being subject to the UTPR is to further delay the 2026 implementation rule’s effective date.

Grant Wardell-Johnson, head of global tax policy at KPMG International, said: Many countries would not want a political fight with the USA in this regard.”