Global tax: Where are we going with agreement, or lack of it?

The Trump Executive Orders

We are now about four weeks removed from the Trump Executive Order regarding the “Global Tax Deal”, effectively giving the Organisation for Economic Co-operation and Development (OECD) notice that Pillars One and Two would have no force in the US. In that order Trump directs the US Treasury Secretary and US Trade Representative to: 

• identify any countries that have or are likely to put into place tax rules that are extraterritorial or disproportionately affect US companies 
• develop options for response 
• deliver findings and recommendations to the President within 60 days (of 20 January 2025).

Trump also issued a separate but similar order that day for an investigation of whether any foreign country subjects US corporations or citizens to discriminatory taxation. If that is deemed to be true, the order references Section 891 of the US tax law as a potential remedy, which doubles US tax rates on the citizens and companies from those countries investing or doing business in the US. The report on this study is due to President Trump on 1 April 2025.

Following on that order, a bill was introduced in the US Congress authorizing the US Treasury Department to investigate extraterritorial and discriminatory taxes on US citizens and corporations by other countries and provided for a 20% tax to be implemented on non-US investors and companies over four years.

What type of discriminatory taxes could be the focus of these orders?

The Pillar One initiative that reallocates part of the profits of some of the largest and most profitable multinationals to where the products and services are used, is thought by many to be dead on arrival. The US view is that Pillar One discriminates against larger US companies.

Under Pillar Two, the taxes that the US believes could be arbitrarily assessed against a US company include the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR).

In addition, potential Digital Services Taxes (DST’s) that may be legislated by other countries, in response to the US not supporting Pillar One, also are a focus of the investigations.

The US was able to avoid DST assessment on US companies during the first Trump administration, will that be possible again?

How far off really is the US currently from a 15% minimum tax rate?

The US corporate tax rate is currently 21%, and the US currently has a Corporate Alternative Minimum tax rate of 15%. There are a few sticking points on the US current treatment of foreign earnings and credits, but some commentators say the US is not far off from compliance.

Is it possible that the Executive Orders are meant to just gain some leverage for additional concessions for the US from the OECD?

How is the OECD responding to the Trump Executive Order?

To date, the OECD has not issued a response to the Trump Executive Order, other than posting it on its Pillar Two website.

In the meantime, it appears to be business as usual at the OECD. On 15 January 2025, the OECD Inclusive Framework issued several additional Pillar Two transition rules.

The OECD noted that 27 countries have already passed local legislation in effect implementing the Income Inclusion rule (IIR) and 28 countries have passed legislation implementing the Qualified Domestic Minimum Top-up Tax (QDMTT). Some countries are already into their second year of Pillar Two law. It should also be noted that the US so far has not withdrawn from the OECD.

Will proposed tax legislation this year by the Trump administration have any bearing on Pillar Two?

Trump has proposed a 15% US corporate Income tax rate for companies doing business in the US, still in compliance with the Pillar Two rate. It is also possible that upcoming legislation this year could make the foreign and credit provisions either more or less compliant with Pillar Two.

What are other countries saying or doing in response to these recent US actions?

US

“Trump Executive Order regarding the "Global Tax Deal", effectively giving the Organisation for Economic Co-operation and Development (OECD) notice that Pillars One and Two would have no force in the US.”

Gregory J. Buteyn, International Tax Partner, Crowe US

Australia

“Australia has not formally responded to Trump’s Executive Order regarding the “Global Tax Deal”. It should be noted that the Australian Government has already implemented the Pillar Two global and domestic minimum tax rules into domestic law effective fiscal years starting on or after 1 January 2024. This means that certain Australian taxpayers have now completed a full financial year which will be subject to Australian Pillar Two rules and obligations.

Given the above, it is expected that Australia will go ahead with Pillar Two, irrespective of the position taken by the Trump administration. The Australian Government is however amid broader negotiations with the Trump administration, primarily in relation to the US proposed tariffs on steel and aluminum imports.”

Anthony Patrk, Senior Tax Partner, Crowe Australia

Canada

“Canada previously introduced legislative measures as part of its commitment to Pillar One and Two, including enacting a global minimum tax, a digital services tax and a proposed UTPR. Although Canada is currently committed to Pillar One and Two; it remains to be seen how Canada’s current minority government will respond to the recent developments coming from this new US administration.”

Devon Huber, Tax Partner, Crowe Canada

Singapore

“Singapore has enacted new Multinational Enterprise Top-Up Tax and Domestic Top-Up Tax rules, effective for in-scope entities with financial years beginning on or after 1 January 2025. As it stands, unless a bilateral agreement is reached with the United States, US multinationals in Singapore will be subject to Pillar Two requirements.

The US is Singapore’s leading trade partner in services, its second largest in goods, and its largest foreign investor, with American investments in Singapore continuing to rise. While Singapore has yet to issue an official response to Trump’s Executive Order regarding the “Global Tax Deal”, the country’s strategic priorities and past actions suggest a careful, well-deliberated pragmatic approach. Hence, it is likely that Singapore will seek ways to maintain its strong trade and investment relationship with the US. If the OECD Pillar 2 weakens significantly, Singapore may retain greater flexibility in its tax policies while ensuring that it remains an attractive hub for American and global businesses.”

Sivakumar Saravan, Senior Tax Partner, Crowe Singapore

UK

“Last year the UK DST raised around £750 million – which seems like a lot but is roughly 1.5 days spending on the UK National Health Service. It is widely felt that DST could be a tradeable if a deal needs to be done with the new US administration. The UK government says it remains committed to Pillars One and Two, though it is likely it will keep a watching brief over how other OECD countries react. As one commentator said, “being the last cheerleader for an economically suicidal half-dead global agreement makes little sense”. If the rest of the world folds, the UK will follow.”

Laurence Field, Corporate Tax Partner, Crowe UK

What should multinational companies be doing in response at this time? 

• Companies should closely monitor developments in this area, including the responses of other countries and the OECD. 
• Reports are required to be made to President Trump by 21 March 2025 and 1 April 2025 with respect to the findings and recommendations of the two Executive Orders. Companies should be watching for the public release of those reports, as this will provide a clearer indication of the issues to address. 
• The new tax bill assessing a 20% tax on non- US corporations and citizens should be monitored as it progresses through the US Congress.
• The US Congress is projecting to complete a new comprehensive tax bill by 31 May 2025, and progress on that bill should be closely monitored to assess the tax impact to a multinational’s US taxable income. 
• Companies should strongly consider modeling out the potential effects of these developments on the cash flows and tax liabilities related to their multinational operations. 

For more information on anything discussed in this article, please contact Laurence Field, Gregory Buteyn or your usual Crowe contact.