Trump threatens double taxation for foreigners and companies

Donald Trump has threatened to double tax rates on foreign nationals and US companies to reverse “discriminatory” tariffs on many US expatriates, threatening to spark global conflict over tax regimes.

In a memo outlining his “America First” trade policy on Monday, the US president spoke of an obscure 90-year-old provision of the US tax code – Section 891 – that gives him the power to retaliate against foreign countries by imposing punitive taxes on them. American citizens and businesses.

The threat came as Trump launched his administration for a broader international tax war, with a tax on digital services against large technology groups and the low tax system for business created by the OECD.

His order, signed on Monday, asks the Secretary of the Treasury Department to “investigate whether any foreign country subjects US citizens or tax authorities to discriminatory or foreign taxation” so that comply with Section 891.

This section states that when the president officially declares such discrimination, the tax rates should be “doubled in favor of every resident of such foreign country” – without requiring a permit. of DRM.

“This (invoking Section 891) is the most extreme option and it’s interesting that they’re threatening to use it right out of the gate,” said Alex Parker, director of tax affairs at Eide Bailly. “Depending on how the law is written, it appears to be double or nothing.”

Trump also issued a separate policy memo that withdraws US support for last year’s OECD tax treaty, which allows other countries to impose higher taxes on American citizens.

He also said that a “list of options for security measures” should be drawn up “within 60 days”, to put signatories to the OECD agreement – including EU member states, the UK, South Korea, Japan and Canada – on notice that Washington is determined to stay away. -to meet the challenges in the world’s tax laws.

European leaders clashed with Trump during his first term as president over a proposed digital tax that would hit US tech giants such as Apple and Alphabet’s Google, threatening France in time another in fees.

Canada also introduced a “digital services tax” last year that the US rejected as “discriminatory” against American companies.

Trump’s invitation to the OECD on Monday also includes investigating “whether any foreign countries are not in compliance with the US tax treaty or have tax laws, or may impose tax laws in place of foreign or disproportionately affecting American companies.”

Everett Eissenstat, a partner at Squire Patton Boggs and a former Trump administration official, said the invitation to trade and the OECD represented “the integration of tax and trade policy, which is really there in this era of the Trump presidency”.

He added: “This might be aimed at places where businesses have a lot of intellectual property like Ireland, and it might get what the EU is doing to try to get more money out of it.” out of US tech companies.”

Former UK trade department official Allie Renison, who now consults with the SEC at Newgate, said the move shows Trump is widening the net of “economic warfare” beyond tariffs in line with what the US has what it sees as discriminatory practices from other countries.

A global agreement agreed at the OECD based in Paris in 2021 and partly proposed by several countries last year was expected to raise taxes from the world’s largest countries by $192bn a year.

Under the “second pillar” of the OECD agreement, if corporate profits were taxed at less than 15 percent in the country where the international headquarters were located, signatories could levy taxes he’s up. Another set of related measures, known as the tax-free profits rule, has long been used. Republican Wrathwhere the party says it is “discrimination”.

Grant Wardell-Johnson, global head of tax strategy at accounting firm KPMG, said US responses could include imposing additional taxes on foreign businesses operating in the US, or withholding taxes on payments. of those places.

“Finally we are seeing international taxation moving from the territory of different countries to the territory of two countries based on strong unilateral claims. It is a new world of taxation,” he added.

A senior EU official said that Trump’s billionaire tech tycoons are forcing him to act instead of trade. They added: “The conversation about tariffs will be contentious, but the real fight will go where wealth is at stake and big tech has an interest.”

OECD Secretary-General Mathias Cormann said: “There have been concerns expressed to us by US representatives regarding various aspects of our international tax treaty.”

He added that the organization will “continue to work with the US and all countries at the table to support international cooperation that promotes certainty, avoids double taxation, and protects tax bases”.

Valdis Dombrovskis, the EU’s economic commissioner, said that although the European Commission “feels sorry” for the tax announcement, it is interested in “taking time to discuss this issue with the new US tax system”.

Additional reporting by Paola Tamma in Brussels and Ilya Gridneff in Toronto