Report from the Financial Times
In Brief – President Donald Trump has effectively pulled the United States out of the global corporate tax reform agreement at the OECD negotiated by the Biden Administration in 2021 and backed by 140 countries. That deal tried to address two long-running progressive tax policy concerns – a way to increase taxes paid by digital giants who often operate across national borders, and frustration with low-tax “havens”. During the first Trump Administration, France led the way to increase taxes on digital giants, enacting a “Digital Services Tax” (DST) on the biggest internet companies, which were nearly all US-based. Other countries followed suit. President Trump responded with tariff threats, the DSTs were delayed, and talks moved to the OECD. The Biden Administration changed tack, adding the tax haven issue to the mix as their top priority. This led to a two-part deal. To eliminate tax havens, countries agreed to set a minimum corporate tax of 15 percent. The DST section was expanded to cover other highly profitable consumer-facing companies like pharmaceuticals. The new Memorandum on the OECD Global Tax Deal calls on the Treasury Secretary and USTR to propose ways to retaliate against governments that impose taxes that violate existing tax treaties, which likely includes DST regimes. A separate Memorandum on Trade Policy instructs officials to look for “discriminatory or extraterritorial” taxes on US citizens or companies in the context of US Section 891 that allows the US to double the tax bills of foreign companies or individuals whose governments impose higher taxes on Americans.
Context – The US Congress never made changes to conform to either part of the OECD deal due to opposition from Republicans and many parts of the US business community, who expect higher taxes on overseas earnings. Also, with the US not joining on, more than a dozen countries have started collecting their national DST taxes from large, mostly American, digital companies. President Trump took a very aggressive stance with the Europeans on DST taxes in 2020 at a time when his relationships with the tech giants seemed very strained. Those relationships appear much stronger now.