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Donald Trump has ordered officials to draw up retaliatory measures against countries applying “extraterritorial” taxes on US multinationals, a move that threatens to trigger a global confrontation over tax regimes.
The US president made the move in an executive order on Monday night, withdrawing US support for a global tax pact agreed at the conference OECD last year that allows other countries to levy additional taxes on US multinationals.
He added that a “list of options for safeguards” should be drawn up “within 60 days”, a warning to OECD pact signatories – including EU member states, the UK, South Korea, Japan and Canada – that Washington is thinking far ahead. – solving problems with global tax rules.
Trump clashed with European leaders during his first term as president over proposed digital taxes that would affect major US tech groups such as Google owner Alphabet and Apple, at one point threatening France with tariffs.
His Monday order includes an investigation into “whether any foreign countries are not in compliance with any tax treaty with the US or have in place or are likely to have tax rules that are extraterritorial or disproportionately affect US companies.”
Former UK trade official Allie Renison, now at SEC consultancy Newgate, said the move showed Trump was extending the net of “economic warfare” far beyond tariffs in response to what the US sees as discriminatory practices by other countries. “Going after their domestic tax regimes against the backdrop of global commitments to date shows that Trump is getting creative in his fight to put America first,” she said.
“The web of economic warfare continues to spread far beyond mere tariffs, and as governments begin to consider their response, concerns now center on what else might be caught in the retaliatory crosshairs — and the inevitable costs that come with it.”
The global deal, agreed at the Paris OECD in 2021 and partially implemented by several countries last year, was expected to raise taxes on the world's biggest multinationals by up to $192 billion a year.
Under “pillar two” of the OECD agreement, if corporate profits were taxed below 15 percent in the country where the multinational is based, signatories could potentially charge additional fees. But one part of the interlocking measures, known as the taxable profits rule (UTPR), has long drawn Republican angerwith the party labeling it as “discriminatory“.
Grant Wardell-Johnson, global head of tax policy at accountants KPMG, said US responses could include imposing additional taxes on foreign-owned businesses operating in the US or withholding taxes on payments to those jurisdictions.
“Ultimately, we are witnessing a shift in international taxation from a multilateral realm to a bilateral one based on strong unilateral claims. It's a new tax world,” he added.
Alex Cobham, chief executive of the international campaign group Tax Justice Network, said Trump's move effectively left the OECD pact “dead in the water”.
In a two-part memo to the US Treasury secretary, Trump first ordered the withdrawal of the Biden administration's commitments to the OECD pact — a move that had been widely expected — but then broadened the scope of the attack.
Cobham said the potential scope is not just whether the OECD pact violates tax treaties, but the extraterritorial potential of all tax rules in all countries.
“If you take that statement at face value, there's a good chance they're going to come back in 60 days and say that most countries in the world and most OECD countries should be subject to the countermeasures they're talking about,” he said.
One senior EU official said Trump's billionaire tech entrepreneurs were pressuring him to act on taxes rather than trade. “The tariff conversation will be transactional, but the real fight will shift to where assets are at stake and big tech is interested,” they added.
Mathias Cormann, OECD Secretary-General, said: “US representatives have expressed concerns to us about various aspects of our international tax agreement.”
He added that the organization will “continue to work with the US and all countries at the table to promote international cooperation that promotes certainty, avoids double taxation and protects the tax base.”
The European Commission said it was taking note of Trump's presidential memorandum. “For our part, we remain committed to our international commitments. . . and we are open to meaningful dialogue with our international partners,” the spokesperson said.
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