
By Sama Marwan,
The Financial Times reported that a second term for U.S. President Donald Trump in the White House threatens to ignite global disputes over taxation, as experts express concerns over Republican pledges to punish countries that impose additional levies on American multinational corporations.
The newspaper highlighted that the conflicts revolve around Republican dissatisfaction with a key element of the global tax agreement brokered by the Organization for Economic Cooperation and Development (OECD). The agreement, which takes effect this year, will allow other countries to impose additional taxes on U.S.-based multinational companies.
According to Alan McLean, Chair of the OECD Tax Committee, imposing tariffs in response to global tax measures “could hinder economic growth by increasing operational costs for companies and raising prices for consumers.”
Tax experts believe that the European Union is likely to be in the crosshairs of Republicans, particularly regarding a major aspect of the agreement known as the “undertaxed profits rule”, which they view as discriminatory.
This rule allows countries to increase taxes on local subsidiaries of multinational groups if they pay less than 15% in corporate tax. In effect, other countries could impose additional taxes on U.S. companies.
However, some experts believe the EU may seek a settlement with Trump on tariffs in exchange for preferential treatment for its exports. Others argue that such a compromise is unlikely, as it would require unanimous approval from the 27 EU member states.
The EU’s trade surplus with the United States amounts to €158 billion, according to European Commission data.
Trump has previously threatened to impose tariffs to protect American businesses and households. Following his recent electoral victory, he threatened to withdraw from the North American Free Trade Agreement (NAFTA) with Canada and Mexico and impose 25% tariffs on imports from those countries.
Key Elements of the Global Tax Agreement
The tax deal, which countries have agreed to in principle, consists of two pillars:
- Pillar One: Requires the world’s largest multinational corporations to declare their profits and pay more taxes in the countries where they conduct business.
- Pillar Two: Establishes a global minimum corporate tax rate of 15% to prevent companies from relocating their headquarters to low-tax jurisdictions.
Republican Concerns in Congress
U.S. Congressional Republicans view the undertaxed profits rule as discriminatory and extraterritorial. They argue that the global tax agreement undermines U.S. interests.
So far, the rule has been legislated in Australia, Canada, Japan, New Zealand, Norway, South Korea, Turkey, the United Kingdom, and across the European Union.
However, one potential solution to avoid the issue of U.S. multinationals facing these rules is for countries to delay the implementation of the undertaxed profits rule until after 2026.