Donald Trump's second term in the White House threatens to spark a global row over taxes, with experts expressing concern over Republican pledges to punish countries that use additional taxes on US international markets.
The head of tax at one major multinational told the Financial Times that 2025 “could be the year where everything goes to hell in a handbasket and businesses are caught in the middle”.
Alan McLean, chairman of the Business in the OECD tax committee, which represents business interests in the negotiations between the Paris-based group of rich economies, said that the imposition of taxes in response to global tax measures “could disrupt economic growth by increasing operating costs for businesses. and increasing prices for consumers”.
The arguments focus on Republicans' unhappiness over the most important part of the global tax treaty that was agreed upon. The OECD that from this year it will allow other countries to charge higher taxes on US multinationals.
Trumpa self-proclaimed “tax man”, he often threatens to use taxes to ensure that the interests of US businesses and households are protected. Since winning the US election, the president-elect has threatened to tear up the free trade agreement with Canada and Mexico and impose tariffs of 25 percent on goods from its neighbors.
Tax experts believe that The EU is in the crosshairs Republicans, who have marked the main part of the OECD agreement, known as the principle of taxable income and often called UTPR, as “discriminatory”.
The rule allows countries to raise taxes on a local subsidiary of a multinational group if the multinational pays less than 15 percent of corporate tax in any other place. This rule would mean that other countries would be able to levy higher taxes on US companies.
“There is a broad feeling among Republicans that US companies should not pay UTPR,” said Aruna Kalyanam, EY's global tax policy leader.
The EU has implemented this rule under the directive by 2022, but some experts believe that the bloc could relax with Trump in its insistence on fair treatment compensation for its exports.
The EU has a trade surplus with the US of €158bn, according to figures from the European Commission.
“Europe has a strong culture of law and the law is the law, but I can imagine a future arrangement between Trump and the EU where the EU will give up the UTPR in order not to get involved in the economic war,” said Valentin Bendlinger, a. senior consultant at ICON Wirtschaftstreuhand, a tax consulting company in Austria.
However, some say the change is unlikely as it would require consensus from all 27 member states.
“(The UTPR) is widely implemented, a bargaining chip, and cannot be changed easily,” said Rasmus Corlin Christensen, an international tax researcher at the Copenhagen Business School.
From 2021, more than 140 countries are working in the OECD to implement an important tax agreement.
The agreement, which countries have agreed to in principle, includes two “pillars”. The first seeks to force the world's largest countries to declare profits and pay more to the countries in which they do business. The second introduced a 15 percent effective tax rate around the world, designed to reduce the number of people who switch residences to pay less tax on their incomes.
Influential Republican congressman Jason Smith in 2023 described the OECD global agreement as “Biden's global tax surrender”.
Smith drafted a bill to increase the tax rate on the profits of companies subject to “foreign taxation and discrimination”, against the US international, including the UTPR. The bill has not been passed but could be revived under president Trump.
It won't be a “heavy lift” for the Republican administration, which controls all government departments, to install it, Kalyanam said.
Smith's opposition to the OECD agreement is shared by Republican administrations. One congressional aide echoed Smith's language and said the UTPR law was widely viewed by Republican lawmakers as “discriminatory” and “foreign.”
“In general, Senate Republicans feel that the tax deal undermines American interests,” the aide said.
The question of whether the tax war continues may depend on whether or not other countries want to enforce the UTPR rule.
To date, UTPR has been legislated in jurisdictions including Australia, Canada, Japan, New Zealand, Norway, South Korea, Turkey and the UK, alongside the EU.
However, some countries in the OECD concerned about US concerns have introduced a “temporary safe harbor”. This delays the effective date of the UTPR until 2026 in countries with a statutory corporate tax rate above 20 percent. The US has a tariff of 21 percent – although Trump has proposed cutting it to just 15 percent for domestic manufacturers.
Not all jurisdictions that have enacted the UTPR have introduced a safe harbor clause.
“That causes companies to turn their backs,” said Danielle Rolfes, KPMG's head of national tax in Washington.
Some hope that there will be a compromise between the countries that could prevent a tax war.
“There will be some kind of agreement. That's what Trump likes to do. It's going to be painful down the road,” said the head of international taxation.
One way countries can decide to avoid the potential problem of US internationals under the UTPR is to further delay the date of enforcement of the enforcement rule past 2026.
Grant Wardell-Johnson, global tax policy leader at KPMG International, said: “I suspect they will kick it down the road and the UTPR safe harbor will be extended. Many countries would not want a political fight with the US in this regard. “