The return of Donald Trump raises the prospect of a global tax war

Donald Trump’s second term in the White House threatens to rekindle the global debate on taxes, and experts are expressing concerns about Republicans’ vows to punish countries that use more taxes on American countries.

The head of tax at one major multinational told the Financial Times that 2025 “could be the year that everything goes to hell in a handbasket and businesses are caught in the middle”.

Alan McLean, chairman of the OECD’s tax committee, which represents business interests in negotiations among the Paris-based group of rich economies, said the imposition of tariffs on global tax measures “could hinder the growth of economy by raising operating costs for businesses and increasing prices for consumers”.

The disputes have focused on Republicans’ unhappiness over a key part of the global tax treaty. OECD that starting this year will allow other countries to impose higher taxes on the American countries.

Trumpthe self-described “theriff man”, often threatens to use taxes to ensure that the interests of US businesses and households are protected. Since winning the American elections, the president-elect has threatened to destroy the free trade agreement with Canada and Mexico and impose tariffs of 25 percent on its neighbors.

Tax experts believe that The EU is in a different situation Republicans, who have marked a key part of the OECD agreement, known as the low-tax profits rule and often referred to as the UTPR, as “exempt”.

The law allows states to increase taxes on the domestic corporation of a multinational corporation if the multinational pays less than 15 percent of the corporate tax in any other jurisdiction. This law would mean that other countries would be able to levy higher taxes on US companies.

“There is a broad view among Republicans that US companies should not pay UTPR,” said Aruna Kalyanam, EY’s global tax strategy leader.

The EU made this move under the 2022 directive, but some experts believe that the bloc may compromise with Trump on its implementation in favor of better treatment of its foreign goods.

The EU has a trade surplus with the US of €158bn, according to figures from the European Commission.

“Europe has a strong legal culture and the law is the law, but I can think of a future arrangement between Trump and the EU where the EU will grant the UTPR in return for not engaging in an economic war,” he said. Valentin Bedlinger, a. senior consultant at ICON Wirtschaftstreuhand, a tax consulting company in Austria.

However, some say the change may not happen as it would require agreement from all 27 member states.

Rasmus Corlin Christensen, an international tax researcher at the Copenhagen Business School, said: “(UTPR) is widely implemented, it is a powerful negotiation tool, and it cannot be easily reversed.

As of 2021, more than 140 countries have been working at the OECD to implement the landmark tax treaty.

The agreement, which the countries agreed on in principle, has two “pillars”. The first seeks to force the world’s largest countries to declare profits and pay more to the countries they do business with. The second introduces a 15 percent effective global tax rate, which is intended to reduce people from different nations paying less tax on their profits.

Influential Republican Congressman Jason Smith in 2023 described the OECD global alliance as a “tax concession to the world of Biden”.

Smith wrote a bill to increase the tax rate on the profits of companies located in jurisdictions with “foreign and discriminatory taxation”, against many US states, including the UTPR. The bill was not enacted but could be revived under a Trump presidency.

It would not be a “heavy lift” for the Republican administration, which controls all branches of government, to do it, Kalyanam said.

Smith’s opposition to the OECD agreement is shared by Republican senators. A senior congressional aide echoed Smith’s speech and said the UTPR law is widely seen by Republican lawmakers as “discriminatory” and “extraterritorial.”

“In general, Senate Republicans feel that the tax agreement undermines US interests,” the aide said.

The question of whether the tax fight continues may depend on how other countries want to implement the UTPR law.

To date, UTPR has been enacted in jurisdictions including Australia, Canada, Japan, New Zealand, Norway, South Korea, Turkey and the UK, as well as the EU.

However, some countries in the OECD that are aware of the US’s concerns have introduced a “temporary safe harbor”. This delays the effective date of the UTPR to 2026 for countries with a corporate income tax rate above 20 percent. The US has a 21 percent rate — though Trump has proposed reducing it to 1 percent. 15 only for home builders.

Not all governments that have enacted the UTPR have introduced a safe harbor clause.

“That creates a lot of tension for companies,” said Danielle Rolfes, head of KPMG’s national tax practice in Washington.

Some are hoping that a compromise can be found between the countries that could also prevent a tax war.

“There will be some kind of agreement. That’s what Trump likes to do. It will be painful on the way, however,” the international tax director said.

One way states can decide to avoid the potential problem of more US states being governed by the UTPR is to delay the effective date of the law to 2026.

Grant Wardell-Johnson, global tax strategy leader at KPMG International, said: “I doubt they will kick it and the UTPR safe harbor will be extended. Most countries will not want a fight of politics and the US for that matter.”