Trump Administration Rescinds Previous Commitments to OECD’s Global Minimum Tax

January 20 was a watershed moment for the OECD’s efforts to implement a Global Minimum Tax. More commonly known as Pillar Two, the Global Minimum Tax was an initiative to reduce tax evasion by Multinational Enterprises (MNEs) and ensure a fair split of tax revenue between cooperating countries. Champions of the initiative would argue that by setting a minimum tax rate, Pillar Two helps prevent multinational corporations from engaging in aggressive tax avoidance strategies, such as shifting profits to low-tax jurisdictions, and stabilizes the global tax framework, avoiding competition via a “Race to the Bottom” by the jurisdictions in question.

Critics of Pillar Two hold diverse and often conflicting views. Common criticisms include concerns that the tax rate is insufficiently stringent, placing undue strain on small to medium-sized enterprises. Some argue that the rules are overly complex and encroach upon the sovereignty of participating countries. Additional objections highlight that the tax rate is too low and that increasing foreign taxes could result in reduced revenue for the U.S. Treasury due to an increase in foreign tax credits issued.

Among these critics is the Trump Administration. On January 20, 2025, President Trump enacted an Executive Order, effectively withdrawing from any commitments made between the Biden Administration and the OECD. The Memorandum preface states, “The OECD Global Tax Deal supported under the prior administration not only allows extraterritorial jurisdiction over American income but also limits our Nation’s ability to enact tax policies that serve the interests of American businesses and workers.”

Effective immediately, the order states that any commitments or agreements made previously will have no force or effect on the American legislative system until an act of Congress formally adopts such agreements. The memorandum goes on to say that the Secretary of the Treasury will, to protect the interests of American taxpayers, perform investigations into any foreign countries that are within compliance with existing tax treaties and if any such jurisdictions have enacted rules that disproportionately affect American taxpayers. The Secretary of the Treasury is expected to deliver these findings within 60 days of the order.

The ongoing debates between the U.S. and the OECD are complex and continuously evolving, making it challenging to keep track of developments, especially for those unfamiliar with both Pillar Two and U.S. international taxation.

Please contact our Global Business Services team with any questions or concerns regarding these regulations or any other international tax issue.