US withdraws from Global Tax Deal
The Trump administration has decided to withdraw from the OECD’s Global Tax Deal.
President Donald Trump’s “America First” policy could now have an effect on international tax law. The OECD’s work to ensure that multinational companies pay a minimum tax is one of the points that can now be affected.
Immediately after the inauguration, President Trump has issued so-called “Presidential Actions” that could have an impact on international tax cooperation, among other things.
The White House announced the 20th. January this year that all obligations entered into by the Biden administration concerning the OECD Global Tax Deal shall not have effect in the United States. The scope and consequences of Trump’s presidential order are not entirely clear including whether the US withdraws from the entire BEPS project or parts of it.
The OECD Global Tax Deal was developed as part of the G20s Base Erosion and Profit Shifting (BEPS) framework, which involves international cooperation to address global tax challenges. The central aspect of the BEPS project is to find solutions that counter multinational companies can move profits from countries where value creation takes place to low-tax countries. Such movement of profits can, for example, be made through the deduction of royalties or interest paid to group companies in low-tax countries.
According to Trump’s presidential order, U.S. sovereignty is limited through the OECD’s work, and this also goes beyond U.S. companies’ competitiveness.
The Minister of Finance and the United States’ permanent representative at the OECD have been tasked with notifying the OECD that the obligations under the Global Tax Deal have no effect in the United States.
In addition to withdrawing from the Global Tax Deal, the Treasury Secretary and the U.S. Trade Representative will investigate whether countries comply with U.S. tax treaties or have taken action, or are likely to take action, that is considered discriminatory for U.S. companies. If countries have a discriminatory tax policy against U.S. companies, safeguards or other measures from the U.S. will be considered in response. The results of the review should be presented to the President’s Assistant for Economic Policy within 60 days.
FORWARD CONSEQUENCES
The consequences of Trump’s presidential order for the OECD’s efforts to prevent the relocation of tax foundations within multinational corporations remain to be seen. Part of the BEPS project is already implemented in many countries. This applies to both implementation in internal law of minimum tax rules and changes in tax agreements (through the framework agreement MLI, Multilateral Instrument). An obvious danger to Trump’s position is that several other countries are following suit and withdrawing from the important work being done at the international level to ensure a fair global tax system.
We must also await the review of the tax treaties entered into by the United States. Norway and the United States are negotiating a new treaty, and we must hope that Trump’s work does not delay the process of putting in place a new tax treaty with the United States. This is absolutely necessary because the current agreement is outdated on a number of important points. See here about the status of the work on a new tax agreement. New tax treaty with the US in the blue?
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