Attempts to stop some of the world’s biggest companies from shifting profits across borders to avoid paying taxes are “in jeopardy” after Donald Trump’s definitive victory in the US presidential election, experts say.
A global agreement signed at the Paris-based OECD in 2021 and partly introduced by several countries – including EU member states, UK, Norway, Australia, South Korea, Japan and Canada – earlier this year is expected to increase tax revenues for the world’s largest multinationals by up to $192 billion per year.
But experts say Trump’s second term would undermine a key pillar that has prevented big companies from paying less than the minimum effective tax rate of 15 percent on their profits worldwide.
“The second pillar is in jeopardy,” said Wei Cui, a tax law professor at the University of British Columbia.
The structure of the OECD deal means it could affect U.S. multinationals even though Washington has not signed it, despite being a party to the deal.
Under the second pillar, if corporate profits were taxed at less than 15 percent in the country where the multinational is headquartered, signatories could impose a top-up levy, known as the undertaxed profits rule ( UTPR).
But experts say countries are now unlikely to enforce the rule on U.S. companies, lest the Trump-led administration retaliate against them, including imposing high tariffs on their U.S. exports.
Rasmus Corlin Christensen, an international tax researcher at Copenhagen Business School, said he thought “punitive tariffs” seemed the most likely option “given the policies favored by the new administration.”
During the election campaign, Trump said he would impose 60 percent tariffs on all Chinese products and widespread levies of 10 to 20 percent on the rest of the world. Many of his advisers say he wants to use these tariff threats to make better deals for U.S. companies globally.
“There would be criticism and potential retaliation against jurisdictions implementing UTPRs (from the new US administration),” said Daniel Bunn, chief executive of the Tax Foundation, a US think tank.
“People will be more hesitant to implement the TUPR because Trump is in power,” Cui said.
An OECD spokesperson said they would “continue to work with all countries to ensure a fair, rules-based international tax system”.
The United States championed the OECD plan under the Biden administration but failed to pass it in Congress, in part because of Republican resistance.
Last year, Republican Congressman Jason Smith called the deal “Biden’s global fiscal capitulation.” He Also criticized the reforms because they “kill American jobs, give up sovereignty over our tax code, and give a competitive advantage to the Chinese Communist Party.”
Last year, Smith authored a bill to increase the tax rate on profits for companies headquartered in jurisdictions with “extraterritorial and discriminatory taxes” on U.S. multinationals.
However, the bill was never passed.
Bunn said the tariffs and the Republican bill would likely be “part of the discussion” when it comes to possible retaliatory measures from the United States.
Bunn and Cui said Canada would likely be in the crosshairs of the United States.
Alongside the OECD agreement, the United States’ northern neighbor also implemented a digital services tax, which levies 3% on income above C$20 million (C$14.4 million). dollars) and will affect several American technology companies.
“I think they will be targets of retaliation, just like other jurisdictions,” Bunn said. “Canada is one of the United States’ largest trading partners. I think it would be very bad if there was an escalation. . . both in terms of trade wars and taxation.
The EU, which as a jurisdiction has seen the largest number of countries implement the global minimum tax, was the other “most obvious target” of US retaliation, according to Corlin Christensen.
“The UTPR is an important part of what makes the global minimum tax effective, so it would be a significant issue if it were to be weakened,” he added.
Analysts say the first pillar of OECD reform, which countries were already struggling to finalize, is also unlikely to move forward with Trump at the helm.
This pillar aims to force large technology groups and other multinationals to pay more taxes where they operate. However, this would require the United States to agree to other countries gaining taxing rights over its companies.
“For some time the question regarding the first pillar has been: when to declare it dead, and I think maybe (Nov. 6) will be the declaration of death,” said a person familiar with international negotiations.
One risk for multinational companies was that if the first pillar were to fail, “it could lead to a flood of digital services taxes”, with countries unilaterally introducing taxes on technology companies, said Will Morris, head of global tax policy at PwC.
But countries that take this path could also face retaliation from the new US administration, analysts say.
The previous Trump administration opened investigations into 11 countries that had imposed taxes on digital services or planned to do so.
US trade representatives at the time issued Section 301 notifications – a procedure used by administrations to impose tariffs on imports – to the 11 countries.
“Anyone who unilaterally advances DSTs should expect countermeasures from the United States,” said Alex Cobham, chief executive of the Tax Justice Network, a global campaign group. “The idea that this might show some restraint should not be taken very seriously.”
Some jurisdictions might be willing to take the risk. On Thursday, EU officials did not rule out going it alone and imposing significant taxes on American technology groups in the event of failure of the first pillar.
Wopke Hoekstra, head of EU tax policy at the new European Commission, said: “There is no way we are not going to tax these (tech) companies because we cannot reach a global agreement . »
He added: “The preference is to do it on a global scale. If this is not possible, I will have to meet with EU finance ministers and find a second-best solution.”
