Donald Trump has threatened to double tax rates on foreign nationals and businesses in the United States to retaliate for “discriminatory” levies on American multinationals, in a move that threatens to spark a global showdown over tax regimes.
In a memo on Monday outlining his “America First” trade policy, the US president referenced an obscure 90-year-old provision in the US tax code – Section 891 – that allows him to retaliate against foreign countries by imposing punitive taxes on their countries. citizens and businesses in America.
The threat emerged as Trump prepared his administration for a broad international tax fight, with his sights set on digital services taxes against big tech groups and a minimum corporate tax regime negotiated by the OECD.
His order, signed Monday, specifically directs the Treasury Secretary to “investigate whether a foreign country subjects U.S. citizens or businesses to discriminatory or extraterritorial taxes” in order to comply with Section 891.
This article states that when a president officially declares that such discrimination exists, tax rates should “be doubled in the case of every citizen and business of such foreign country” – without needing congressional approval .
“This [invoking Section 891] This is the most extreme option and it is interesting that they are threatening to use it from the start,” said Alex Parker, director of tax legislative affairs at Eide Bailly. “From the way the legislation is worded, it appears to be double that, if anything.”
Trump also issued a separate policy memo withdrawing U.S. support for last year’s OECD global tax pact, which allows other countries to levy additional taxes on U.S. multinationals.
He added that the “list of options for protective measures” should be drawn up “within 60 days”, putting signatories to the OECD pact on notice – including EU member states, the UK , South Korea, Japan and Canada – which Washington intends to do so far. -meet the challenges posed to global tax rules.
European leaders clashed with Trump during his first presidential term over proposed digital taxes that would affect major U.S. tech groups such as Apple and Google-owner Alphabet, at one point threatening France with tariffs .
Canada also introduced a “digital services tax” last year that the United States opposed, calling it “discriminatory” against American companies.
Trump’s OECD memo on Monday also includes an investigation “whether foreign countries are violating a tax treaty with the United States or have failed to implement tax rules, or are likely to implement places tax rules that are extraterritorial or disproportionately impact.” American Businesses.”
Everett Eissenstat, a partner at Squire Patton Boggs and a former Trump administration official, said the trade memos and those from the OECD represented “the merging of tax and trade policy, which really took root during this term.” of Trump presidency.”
He added: “This is probably aimed at jurisdictions where companies have hosted a lot of their intellectual property, such as Ireland, and it is also probably about what the EU is doing to try to extract more revenue from tech companies American. »
Allie Renison, a former head of Britain’s Trade Department and now at SEC consultancy Newgate, said the move showed Trump was broadening the scope of “economic warfare” well beyond tariffs, in response to what the United States considers to be discriminatory practices by other countries.
The global agreement reached at the OECD in Paris in 2021 and introduced in part by several countries last year is expected to increase tax revenues for the world’s largest multinationals by up to $192 billion a year.
Under the “second pillar” of the OECD deal, if corporate profits were taxed at less than 15 percent in the country where the multinational is headquartered, signatories could potentially impose additional levies. One part of the interrelated measures, known as the undertaxed profits rule, has a long history of use The anger of the Republicansthe party calling it “discriminatory”.
Grant Wardell-Johnson, global head of tax policy at accounting firm KPMG, said U.S. responses could include imposing additional taxes on foreign companies operating in the United States, or withholding taxes on payments to these jurisdictions.
“Ultimately, we see international taxation moving from a multilateral domain to a bilateral domain based on strong unilateral assertions. It’s a new tax world,” he added.
A senior European official said Trump’s billionaire tech entrepreneurs were pushing him to act on tax rather than trade. “The conversation about tariffs will be transactional, but the real fight will move to where fortunes are at stake and big tech has an interest,” they added.
OECD Secretary-General Mathias Cormann said: “US representatives have expressed concerns to us about various aspects of our international tax agreement. »
He added that the organization would “continue to work with the United States and all countries around the table to support international cooperation that promotes certainty, avoids double taxation, and protects tax bases.”
Valdis Dombrovskis, the European Commissioner for Economy, said that while the European Commission “regrets” the tax announcement, it wants to “take the time to discuss this issue with the new US tax administration.”
Additional reporting by Paola Tamma in Brussels and Ilya Gridneff in Toronto
