On January 20th, shortly after being sworn in as President of the United States, Donald Trump issued an executive order to withdraw the United States from the global tax agreement of the Organization for Economic Cooperation and Development (OECD), known as the Global Tax Deal (GTD). He instructed the U.S. Treasury Department to investigate whether foreign countries are imposing “discriminatory taxes” on American individuals and companies, threatening to double the taxes on citizens and companies of countries engaging in such practices.
In a memorandum signed on his first day in office, January 20th, President Trump withdrew U.S. support for the OECD’s global tax agreement reached in 2024, which allowed other countries to impose supplemental taxes on American multinational corporations.
The memorandum stated, “The previous administration’s support for the OECD’s global tax agreement not only grants (foreign) jurisdictions taxing rights over U.S. income but also limits our nation’s ability to devise tax policies serving U.S. business and worker interests.”
“Due to the global tax deal and other discriminatory foreign tax practices, if the U.S. does not comply with foreign tax policy objectives, American companies might face retaliatory international tax systems.”
The memorandum declared that the global tax agreement holds no power in the United States, reclaiming sovereignty and economic competitiveness for the country.
President Trump also requested an investigation to determine “whether any foreign country is not adhering to any tax agreements with the United States or (else) creating any tax rules or potentially creating extraterritorial tax rules disproportionately affecting U.S. companies.”
On the same day, another memorandum outlining his “America First” trade policy referenced a provision in U.S. tax law established 90 years ago – Section 891 – granting the U.S. President the authority to retaliate against foreign citizens and companies operating in the U.S. through punitive taxation.
Trump also signed an executive order specifically directing the Treasury Secretary to “investigate whether any foreign country is imposing discriminatory taxes or extraterritorial taxes on U.S. citizens or companies.”
Section 891 of U.S. tax law stipulates that when the U.S. President confirms and formally declares the existence of such “discriminatory taxes,” the tax rates for “each citizen and company of that foreign country in the U.S. shall be doubled” as punitive “anti-discrimination taxes” without requiring further congressional approval.
Trump further instructed the U.S. Trade Secretary to prepare a list of options for protective measures or actions the U.S. should take against countries that have already imposed or plan to impose excessive tax rates on American companies.
He mandated that the “list of protective measures options” be formulated within “60 days,” signaling Washington’s intent to launch significant and long-term challenge actions against global tax rules, including the OECD’s minimum corporate taxation system.
These series of actions by the new Trump administration signify a backlash against global tax rules, including the OECD’s Minimum Tax System and the widespread imposition of Digital Services Taxes on U.S. technology companies.
During Trump’s first presidential term, conflicts arose with European leaders over the Digital Services Tax. The proposed tax would impact major American tech giants like Apple and Google’s parent company, Alphabet. Trump had previously threatened tariffs against France. France is the headquarters of the OECD.
Canada introduced a “Digital Services Tax” last year, which the U.S. opposes, viewing it as discriminatory against American tech companies.
Former Trump administration official Everett Eissenstat, now a partner at the international law firm Squire Patton Boggs, expressed to the Financial Times that Trump’s presidential memorandum on trade and the OECD represents a “fusion of tax and trade policy that has truly taken root during Trump’s term.”
He remarked, “This may be aimed at jurisdictions like Ireland (tax havens) with a large amount of intellectual property holdings, or it could involve the EU trying to extract more taxes from large American tech companies.”
The OECD’s global tax agreement was reached in 2021 and had over 140 countries sign and support it by February 2024. The agreement could potentially increase annual taxes for the largest multinational companies by up to $192 billion.
The global tax agreement aims to address tax avoidance issues of large multinational corporations through two main “tax pillars.” The first pillar redistributes the residual profits of large multinational companies from their home countries to the jurisdictions where they generate income. The second pillar mandates a 15% Global Minimum Tax (GMT).
Under these two “tax pillars,” if a multinational company’s corporate tax rate in its home country falls below 15%, other signatory countries with “jurisdiction” can impose supplementary taxes to ensure the company’s total corporate tax payment reaches the minimum 15% threshold.
The agreement stipulates a 15% minimum corporate tax rate for multinational companies with revenues surpassing 7.5 billion euros (8.12 billion dollars).
As reported earlier by the Financial Times, many countries have begun implementing a 15% minimum corporate tax rate after introducing the global tax agreement, including previous tax havens like Ireland, Luxembourg, Switzerland, and the Caribbean island nation of Barbados.
However, the U.S. Republican Party has long held an angry stance towards the global tax agreement, accusing the tax rules of being “discriminatory” against American businesses.
Allie Renison, a former UK trade department official now working at the EU strategic communications consultancy firm SEC Newgate, remarked that Trump’s retaliatory actions indicate he is expanding the “economic war” far beyond tariffs to address what the U.S. regards as discriminatory practices by other countries.
Grant Wardell-Johnson, Global Head of Tax Policy at KPMG, told the Financial Times that the U.S. response could involve imposing additional taxes on foreign companies operating in the U.S. or withholding tax payments to overseas jurisdictions.
He stated, “Ultimately, we are seeing international taxation moving from the multilateral realm towards a bilateral sphere based on strong unilateral positions. This is a new tax world.”
During his 2024 re-election campaign, Trump pledged to further reduce corporate taxes from 21% to 15%, building on the Tax Cuts and Jobs Act of 2017 achieved in his first term, in a bid to attract American companies to relocate their headquarters back to the U.S. and generate more tax revenue for the country.
A senior EU official told the Financial Times that American tech billionaires are pushing Trump to take action on taxes rather than trade. He stated, “The conversation about tariffs will be transactional, but the real battle will shift to where fate of wealth and large tech companies intersect.”
Secretary-General of the OECD Mathias Cormann remarked, “The U.S. delegation has raised concerns with us on various aspects of our international tax agreement.”
He noted that the OECD will “continue to work with the U.S. and all participating countries to support international collaboration promoting certainty, avoiding double taxation, and protecting the tax base.”
European Commissioner for Economy Valdis Dombrovskis expressed regret over the announcement by the U.S., stating that the European Commission is interested in discussing the matter with the new U.S. Internal Revenue Service.
Nevertheless, Trump’s series of counteractions against foreign “discriminatory taxes” in his second term is likely to trigger adjustments to the global tax system.