Trump Blocking Path to Global Tax Reform
US tech firms dodging OECD rules may still be caught out by digital services taxes, UN-led efforts.
President Donald Trump’s decision to formally withdraw the US from international tax reform plans will likely hinder progress building a fair and equitable global taxation system, according to experts.
At his inauguration earlier this month, Trump signed an executive order instructing the US Treasury Department to prepare “protective measures” against countries imposing taxes that “disproportionately affect American companies”. He also withdrew from tax reforms put forward by the Organisation for Economic Cooperation and Development (OECD).
“The OECD [rules] were supported by 140 countries back in 2021 for a good reason – it halts the global race to the bottom on corporate income tax [and] raises vital revenue across the globe,” Paul Monaghan, CEO of the UK-based campaign group Fair Tax Foundation, told ESG Investor.
“We need to see US-based multinational companies captured by an international [tax] accord because, to be blunt, many of them have been global pioneers of aggressive tax dodging – especially Big Tech,” he added.
The OECD reforms consist of two pillars. Pillar One proposes reallocating profits from large multinationals to all markets where they sell their products and services. Pillar Two imposes a minimum corporate tax rate of 15% on the global profits of companies with annual revenues of more than US$750 million in at least two of the past four years.
These rules are expected to massively impact big tech firms – the majority of which are headquartered in the US.
A 2023 study found that, between 2011 and 2020, the ‘Silicon Six’ – including Amazon, Meta and Microsoft – paid US$96 billion less in tax than the notional taxation figures cited in their annual financial reports.
The US’ failure to align with OECD rules increases the risk of more countries maintaining or implementing digital services taxes (DST) to raise revenue from digital and technology firms not covered by Pillar One or Pillar Two, Monaghan warned.
“That type of chaos is the worst-case scenario for large US multinationals,” Monaghan said. “It’s far better to have a multilateral accord across the world.”
The OECD has estimated that Pillar 1 will generate US$200 billion per annum in additional tax revenues and Pillar 2 up to US$220 billion.
Countries that have implemented legislation to adopt the OECD reforms include Australia, the UK and Germany.
Swimming against the tide
Although Trump’s decision to remove the US from the OECD tax reform agenda is expected to create misalignment with other countries, domestic rules have made the path to future alignment possible.
US companies are already subject to an existing minimum tax, known as the Global Intangible Low-taxed Income (GILTI), which applies to companies that own more than 50% of a foreign corporation. The GILTI tax ranges between 10.5% to 13.125%, but rates are set to increase next year to between 13.125% and 16.406%.
“[This planned GILTI increase] creates a lovely dovetail with the OECD’s 15% global minimum tax,” said Monaghan.
GILTI was established during Trump’s first term. As of yet, there has been no mention as to whether the planned 2026 increase will be challenged.
Fair and equitable tax governance has also become an increasing priority for US-based investors.
Last year, almost 90 global investors with more than US$2.3 trillion in collective assets co-filed a petition calling on the US Securities and Exchange Commission (SEC) to ensure greater tax transparency from US-listed companies. They recommended that companies be required to publish basic tax and other financial information for each country in which they operate.
Signatories, including the Office of the New York City Comptroller and Boston Common Asset Management, pointed to the reputational and legal risks surrounding ongoing high-profile transfer pricing cases against some of the country’s most powerful companies – Apple, Microsoft and Coca Cola – and how this has spurred a wave of direct, company-level advocacy from investors.
However, alongside the OECD tax reforms, Trump may challenge other tax rules as being extraterritorial or having a disproportionate impact on US companies, including the EU’s Carbon Border Adjustment Mechanism, warned Grant Wardell-Johnson, Head of Global Tax Policy at Big Four accountancy firm KPMG.
“US responses could include additional taxation on businesses of those foreign countries operating in the US, withholding taxes on payments to those jurisdictions and additional tariffs on bilateral trade, amongst others,” he said.
Taking charge
Prior to Trump’s election win, last year the US also opposed efforts by the UN to introduce a universal tax accord, which has been backed by 110 member countries.
Similarly to those of the OECD, the UN’s central objectives include establishing a fair and equitable system of governance for international tax cooperation capable of responding to existing and future tax and tax-related challenges on an ongoing basis.
There has been ongoing tension between the UN and the OECD around which body should be responsible for reform efforts, with developing countries calling for more involvement and representation in global tax rulemaking through the UN.
The OECD has defended its track record on international tax reform, urging the UN to not undermine its efforts to curb cross-border tax avoidance.
Research by British advocacy group Tax Justice Network found that countries are losing US$492 billion in tax a year to multinational corporations and wealthy individuals using tax havens to underpay. Forty-three percent of these losses are enabled by just eight countries that remain opposed to the UN tax convention: Australia, Canada, Israel, Japan, New Zealand, South Korea, the UK and US.
However, the biggest enablers of global tax abuse are also some of the biggest losers, the Tax Justice Network report said. US$177 billion has been lost to tax abuse by the aforementioned countries.
Negotiations to begin drafting the UN-led tax accord are set to commence in February.
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