On his first day in office, 20 Jan, US President Donald Trump issued two executive orders that reshape America’s global tax and trade policy and derail OECD-led tax reforms for multinationals. While experts were stunned by the timing and tone, the message was no surprise. The first order, OECD Global Tax Deal, withdraws the US from the global tax agreement. Rules under Pillar One (new taxing rights in digital markets) and Pillar Two (a global minimum corporate tax) will have “no force or effect” in the US. Prior US commitments are void unless adopted by Congress.
Retaliatory measures on the table
Although the Biden administration supported the deal, it failed to push it through Congress. Trump’s order goes further: it directs Treasury to examine whether foreign tax rules disproportionately affect US businesses or breach tax treaties. If so, Treasury must propose protective measures.
This assessment, due within 60 days, will likely target digital services taxes and global minimum tax measures abroad.
The second order, America First Trade Policy, authorises Treasury, Commerce, and the US Trade Representative to examine extraterritorial or discriminatory taxation of US citizens and firms. It invokes section 891 of the Internal Revenue Code, which could double tax rates for foreign companies and individuals earning income in the US.
A troubled history with the global deal
The US supported the OECD reform in principle, but never fully embraced Pillar One or Pillar Two. More than 130 jurisdictions, including the US, backed the two-pillar framework in 2021.
Pillar One aimed to stop countries from imposing unilateral digital taxes, which mainly targeted US tech firms. But under Pillar One, American companies would pay more tax in customer markets and less in home jurisdictions.
Pillar Two – a global 15% corporate tax rate – was driven by Europe and meant to encourage US buy-in on Pillar One. But the US already had its own version: GILTI, taxing low-taxed foreign income of US multinationals.
Ultimately, the US neither wanted Pillar One nor needed Pillar Two. Lawmakers feared tax losses, foreign control over American firms, and limits on domestic tax policy. They sought to protect US competitiveness and control of tax levers.
Criticism long standing
In Sept 2024, Congress members wrote to OECD Secretary General Matthias Cormann opposing rules like the under-taxed profits rule (UTPR), warning of countermeasures. On 12 Jan 2025, Rep. Ron Estes (R-Kan) wrote in The Times that Pillar Two threatened US tax sovereignty and distorted tax credits, warning of negative impacts on markets and investors.
It’s now clear the US will reject the OECD rules and retaliate against countries that apply them to US firms.
Digital taxes to proliferate
Despite the collapse of Pillar One talks, OECD Secretary General Cormann and EU officials insist the global deal remains relevant. Yet US withdrawal makes further negotiations unrealistic for the next four years.
Countries like Austria, Canada, France, Italy, and Spain plan to move ahead with their own digital services taxes. France already has one and may expand it. In contrast, UK ministers may scrap theirs in exchange for a US trade deal.
But US firms will now face a patchwork of national rules across the EU, increasing compliance costs and risking new trade disputes.
Global minimum tax still in play
Unlike Pillar One, Pillar Two can function without US involvement – but still affects US multinationals.
Pillar Two relies on three mechanisms: a qualified domestic minimum top-up tax (QDMTT), an income inclusion rule (IIR), and, if those aren’t applied, the under-taxed profits rule (UTPR), which allows other countries to impose top-up taxes on US affiliates.
UTPR has drawn the most criticism from US lawmakers, as it is extraterritorial and impacts US companies operating in low-tax jurisdictions or receiving domestic incentives like R&D credits.
OECD research shows many sub-15% tax rates exist in large economies due to local incentives, not just offshore havens.
Even QDMTT, though domestic, may be seen by the US as diverting tax revenue or harming competitiveness, and could provoke retaliation.
Uncertain room for negotiation
The current US administration rejects multilateralism, especially if it affects US interests. Some experts suggest a safe harbour deal for US companies could extend talks, but if the US aims to block all top-up taxes, the project may be over.
Some governments are reconsidering Pillar Two after US withdrawal. But others – including the EU, UK, Japan, and Korea – are pushing forward. UTPRs are scheduled for 2025, but the OECD offers a transitional safe harbour through 2026 for parent companies in 20% tax jurisdictions.
The US remains in the OECD, leaving open the chance for renegotiation. Trump may seek a permanent US exemption from UTPR.
A new trade and tax order
Trump’s approach signals a return to transactional, bilateral deals. As with NATO, the WHO and the Paris Agreement, the US may also defund or sideline the OECD.
The executive orders reflect Trump’s belief that “foreign countries are ripping America off.” In this context, taxes, like tariffs, may become permanent tools of leverage.
Section 891 may be limited by treaties, but the president has other means – including tariffs – to retaliate.
Pascal Saint-Amans, former OECD tax chief, says a full tax war is unlikely, but unilateral taxes and trade sanctions could escalate.
Saint-Amans will speak at Cayman Finance’s 2Q member event on 8 May 2025.
