US President Donald Trump has signalled plans to question the right of any country to tax American multinational corporations and is threatening to take countermeasures against countries that do not, in effect, cede their tax sovereignty over US multinationals operating within their own borders.
In a presidential memorandum1 issued hours after taking office, President Trump signalled plans to turn back US tax policy to a pre-League of Nations standing – to a time when companies could only be taxed by the imperial power they came from, regardless of where they were making their money. Trump also ordered the US Treasury to prepare ‘protective measures’ against any countries exercising tax rules that the new US administration sees as exercising ‘extraterritorial’ or ‘disproportionate’ impact on US-headquartered multinationals.
In effect, this requires countries to cede their tax sovereignty over multinationals operating within their own borders – or face serious countermeasures.
The declaration was made in a presidential memorandum currently receiving much attention for killing the OECD’s long-negotiated global minimum tax rate proposal, by confirming that the US will not participate.2 But the further threat in the memorandum indicates the US is preparing to deem the international tax order built over the past century, including many current international tax rules, as illegitimate – making virtually all countries potential targets for the US’s punitive measures.
Since 2013, the central thrust of international tax reforms has been to achieve better ‘alignment’ between the location of multinational companies’ real economic activity, and where they declare profits for tax purposes. The Trump memorandum puts into doubt any measure that seeks to ensure profits are declared where activity takes place – at least if the multinational is from the US, and certainly if profits are being shifted there. The US administration is thus putting into question the right of any country to tax an American company, including when American companies are located and do business in other countries.
The move from the US confirms warnings from tax experts and campaigners that the OECD is incapable of defending countries’ tax sovereignty from US aggression. Only a UN tax convention, formal negotiations on which begin this year, can protect countries’ freedom to tax multinational corporations doing business within their borders.3
Alex Cobham, chief executive at the Tax Justice Network, said:
“Trump hasn’t just killed the OECD’s weak tax reforms, he’s effectively threatening to scrap everything built over the last century and to take the world back to ‘robber baron’-era tax policies.
“The US will now investigate the tax rules of every other country in the world, and is threatening sanctions for any measure that they view as ‘extraterritorial’ or ‘disproportionately’ affecting US companies. Republican lawmakers have already made clear that they view most current proposals as falling foul of these criteria – and that means that all OECD member countries and many others are now under threat.
“Since 2013, the focus of international reforms has been to curb the ability of multinational companies to shift their taxable profits away from the places that they are actually doing business and making money. The scale of profit shifting has grown steadily due to the OECD’s comprehensive failure – but at least they can say they tried. The Trump administration is now threatening anyone who seeks to claim their fair taxing rights over US multinationals, including the OECD itself.
“Some business leaders may have hoped that Trump would save them money by preventing effective tax reforms. But they should be careful what they wish for: this reckless step will raise tax uncertainty to unprecedented heights.
“Policymakers of other OECD countries, including the EU and UK, face a stark choice. They can give up any hope of exercising their taxing rights over major multinationals for at least four more years, and simply try to avoid a fight with the new bully. Or they can join together and work to defend each country’s tax sovereignty, by committing to ambitious and inclusive progress in the negotiations of the UN Framework Convention on International Tax Cooperation which begin in just two weeks. Only in collective action is there a chance to address the deep failures of international tax rules, and at the same time resist the bullying of the new US administration.”
-ENDS-
Notes to Editor
- Trump’s memorandum orders the US Treasury to prepare options for “protective measures” against countries who implement the global tax rate or other implement other policies that “disproportionately affect American companies”. See Section 2 of the memorandum.
- US President Trump issued a presidential memorandum hours after taking office declared that a global corporate minimum tax rate “has no force or effect” in the U.S. The US’s abandoning of the OECD reforms was long expected following numerous statements by the US House Ways and Means Committee and prominent Republican party members about intentions to reject the reforms, and repeatedly warned about by tax experts and campaigners. See the US House Ways and Means Committee’s September 2024 letterto the OECD’s Secretary General Mathias Cormann that warns: “Should foreign governments seek to target Americans through the UTPR or other mechanisms in the OECD global tax deal, we will be forced to pursue countermeasures”. See the US House Ways and Means Committee’s February 2023 letter to the OECD’s Secretary General Mathias Cormann demanding that the OECD “stop colluding with the Biden Administration to enact a global tax deal that will surrender American sovereignty”.
- A historic vote at the UN General Assembly on 27 November 2024 saw countries decide overwhelmingly to begin the formal negotiation of a UN framework convention on international tax cooperation. Over the next two and a half years, delegates will work together to set new rules and standards relating to both corporate and individual taxation, and to design a new framework body that will house future ‘Conferences of the Parties’ in order to address new tax challenges as they arise in future. Central objectives include the establishment of “a system of governance for international tax cooperation capable of responding to existing and future tax and tax-related challenges on an ongoing basis”, and which is “fully inclusive and effective in terms of substance and process.” The countries of the world committed to ensure a “fair allocation of taxing rights, including equitable taxation of multinational enterprises”, and to address “tax evasion and avoidance by high-net worth individuals, ensuring their effective taxation.” Read more here.
Image credit: The White House from Washington, DC, Public domain, via Wikimedia Commons
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