Trump Challenges Global Minimum Tax

With a series of first-day executive orders, President Trump signaled strong opposition to the 15% global minimum tax supported by his predecessor--and invoked a long-dormant statute to retaliate with higher tax rates on countries that use the minimum tax against U.S. companies.

While the opposition is not surprising, the presidential actions demonstrate that the new administration is not shy about using economic tools to oppose the project, as the administration readies tariffs addressing several other issues.

The global minimum tax--part of the "Two-Pillar" plan at the Organization for Economic Cooperation and Development to address concerns about the global tax system--began as a project under the first Trump Administration. But it expanded significantly in scope when President Biden took office. The plan aims to stem tax avoidance among large multinational corporations by ensuring that they pay at least 15% in any jurisdiction they operate in.

Undertaxed Profits Rule Rankles

The provision provoking the most controversy is the under-taxed profits rule (UTPR), which is meant to be applied to companies based in countries which do not participate in the OECD plan. As Congress declined to enact legislation to implement Pillar Two, it could be applied to U.S. companies with low effective tax rates--for instance, due to the U.S. research and development tax credit. Pillar Two applies to companies with at least 750 million euros ($782 million) in annual revenue.

The OECD created a "safe harbor" which protected U.S. companies in 2025, but did not resolve the impasse permanently.

Dusting Off a 1930s Tax Weapon?

While Trump himself has said little about the project, Republicans have proposed legislation to penalize companies and taxpayers from countries that use the UTPR against U.S. companies. The apparent goal is to convince those countries to repeal the rule, or enact safeguards to ensure it doesn't target the U.S. But Monday's actions indicate that the Trump administration may feel it already has the power to take action. Section 891 of the Internal Revenue Code, enacted in the 1930s amid a trade dispute with France, allows the president to double the taxes on citizens or corporations from a country which enacts "discriminatory or extraterritorial taxes" on U.S. citizens or corporations.

 Aside from retaliation, the lack of participation from U.S. officials could make it harder for the OECD to issue future guidance addressing the many questions about Pillar Two's implementation. The organization typically issues documents approved by all of its members, as well as the larger Inclusive Framework advisory coalition of nations.

The president invoked Section 891 in a memorandum outlining an "America First Trade Policy," and followed with an additional memorandum specifically addressing the OECD.

 A briefing document entitled "President Trump's America First Priorities" also stated that, in his administration, "America will no longer be beholden to foreign organizations for our national tax policy, which punishes American businesses"--possibly a reference to the OECD.

What Next for Pillar Two?

 Pillar Two's many opponents hope that Trump's actions could convince countries to abandon the project altogether. But for the foreseeable future, that remains unlikely, as the rules have already been adapted by legislatures around the world. This raises the prospect of tax or trade wars that could impact both foreign and U.S. taxpayers significantly--as well as the remote possibility that the U.S. and the OECD could still find a way forward. Under President Biden, U.S. Treasury Department officials said they were optimistic that an agreement could be reached to protect expenditure-based nonrefundable credits, such as the R&D credit, from Pillar Two. That could be one area of agreement.

In the meantime, taxpayers will have to consider the risks of being caught in the crossfire.

Alex Parker is Eide Bailly Legislative Affairs Director, located in Washington, D.C.