Donald Trump’s second time period within the White Home threatens to set off world spats over tax, with consultants voicing considerations over Republican vows to penalise international locations making use of further levies to US multinationals.
The pinnacle of tax at one massive multinational informed the Monetary Occasions that 2025 “might be the 12 months that every part goes to hell in a handbasket and companies get caught within the center”.
Alan McLean, chair of the Enterprise at OECD tax committee, which represents enterprise pursuits in discussions among the many Paris-based group of wealthy economies, stated the imposition of tariffs in response to world tax measures “may hamper financial development by elevating operational prices for companies and growing costs for shoppers”.
The disputes are specializing in Republicans’ unhappiness a few essential aspect of a world tax pact agreed on the OECD that from this 12 months will enable different international locations to levy top-up taxes on US multinationals.
Trump, a self-described “tariff man”, has usually threatened to resort to utilizing the levies to make sure that the pursuits of US companies and households are protected. Since successful the US election, the president-elect has threatened to tear up a free commerce settlement with Canada and Mexico and impose 25 per cent tariffs on imports from its neighbours.
Tax consultants consider the EU is within the crosshairs of Republicans, who’ve branded a key a part of the OECD deal, often called the undertaxed earnings rule and sometimes called the UTPR, as “discriminatory”.
The rule permits international locations to extend taxes on a neighborhood subsidiary of a multinational group if the multinational pays lower than 15 per cent of company tax in another jurisdiction. The rule would imply different international locations would be capable of levy top-up taxes on US corporations.
“There’s a broad feeling amongst Republicans that US corporations shouldn’t be paying the UTPR,” stated Aruna Kalyanam, EY’s world tax coverage chief.
The EU enacted the measure below a directive in 2022, however some consultants consider the bloc may compromise with Trump on its enforcement in return for beneficial therapy of its exports.
The EU has a commerce surplus with the US of €158bn, in response to figures from the European Fee.
“Europe has a robust authorized tradition and regulation is regulation, however I can think about a future association between Trump and the EU the place the EU will quit the UTPR for the sake of not getting engaged in an financial battle,” stated Valentin Bendlinger, a senior marketing consultant at ICON Wirtschaftstreuhand, a tax consultancy firm in Austria.
Nonetheless, others say {that a} change is unlikely as it could require settlement from all 27 member states.
“[The UTPR is] extensively carried out, a robust bargaining chip, and might’t be simply rolled again,” stated Rasmus Corlin Christensen, a global tax researcher at Copenhagen Enterprise College.
Since 2021, greater than 140 international locations have been working on the OECD on implementing the landmark tax settlement.
The deal, which international locations agreed in precept, consists of two “pillars”. The primary seeks to pressure the world’s largest multinationals to declare earnings and pay extra within the international locations the place they do enterprise. The second introduces a 15 per cent world minimal efficient company tax charge, designed to restrict multinationals shifting domiciles to pay much less tax on their earnings.
Influential Republican congressman Jason Smith in 2023 described the worldwide OECD deal as “Biden’s world tax give up”.
Smith drafted a invoice to extend the tax charge on earnings of corporations headquartered in jurisdictions with “extraterritorial and discriminatory taxes”, towards US multinationals, together with the UTPR. The invoice was not enacted however that might be revived below Trump’s presidency.
It might not be a “heavy carry” for a Republican administration, which controls all branches of presidency, to enact it, Kalyanam stated.
Smith’s opposition to the OECD deal is shared by Republican senators. One senior congressional aide echoed Smith’s language and stated the UTPR rule was broadly seen by Republican lawmakers as “discriminatory” and “extraterritorial”.
“Usually, Senate Republicans really feel the tax deal undermines US pursuits,” the aide stated.
The query of whether or not a tax battle ensues may depend upon if and the way different international locations search to implement the UTPR rule.
To this point, the UTPR has been legislated in jurisdictions together with Australia, Canada, Japan, New Zealand, Norway, South Korea, Turkey and the UK, alongside the EU.
Nonetheless, some international locations on the OECD which are conscious of US considerations have launched a “short-term secure harbour”. This delays the date the UTPR applies till 2026 for international locations with a statutory company tax charge above 20 per cent. The US has a charge of 21 per cent — although Trump has proposed reducing it to only 15 per cent for home producers.
Not all jurisdictions which have enacted the UTPR have launched the secure harbour clause.
“That’s inflicting lots of hand-wringing for corporations,” stated Danielle Rolfes, head of KPMG’s Washington nationwide tax follow.
Others are optimistic {that a} compromise might be discovered amongst international locations that might additionally avert a tax battle.
“There might be some form of deal. That’s what Trump likes to do. It’s going to be painful alongside the best way although,” the multinational tax head stated.
A method that international locations may determine to keep away from the potential downside of US multinationals being topic to the UTPR is to additional delay the date the enforcement rule kicks in previous 2026.
Grant Wardell-Johnson, world tax coverage chief at KPMG Worldwide, stated: “I think they may kick it down the street and the UTPR secure harbour might be prolonged. Many international locations wouldn’t need a political battle with the US in relation to that.”