Trump Administration Reject OECD Pillar Agreements | OH IN KY

Global Tax Deal – Trump says “No Force or Effect”

Published on by Michael O'Hara in International Business, Tax Services

Global Tax Deal – Trump says “No Force or Effect”

On the first day of his second administration, President Trump issued a memorandum rejecting commitments made under the OECD’s Pillar One and Pillar Two agreements, declaring them to have “no force or effect” in the United States. This decision has significant implications for multinational corporations navigating the complex landscape of global tax compliance.

What is Pillar Two?

Pillar Two started in 2021 when the Organization for Economic Cooperation and Development (OECD) finalized rules to set a minimum worldwide tax rate of 15% for those 140 countries that have adopted the Global Anti-Base Erosion (GloBE) rules.

Update for 2025

The US International Tax regime under GILTI and BEAT rules doesn’t align with the 15% minimum tax rate. The effective tax rate under GILTI is 10.5% until December 31, 2025 and then 13.125% beginning January 1, 2026.

The Biden administration tax agenda was aligned with Pillar Two and proposed changes to the GILTI rules but legislation was never passed. President Trump released a memorandum on his first day in office to the Treasury Secretary and the US Trade Representative notifying them that any commitments made by the Biden administration regarding Pillar One and Pillar Two would have “no force or effect.”

What does this mean?

As part of the GloBE rules, countries can get to the 15% minimum tax rate in a few different avenues. The most intriguing one is “Top-Up” taxes. This requires the ultimate parent company to pay top-up taxes to its home jurisdiction on any undertaxed profits of its foreign subsidiaries. For example, a foreign company owns a US subsidiary. The US subsidiary only pays a 10% tax in the US. When the foreign company files its taxes in its home country, that country could impose a 5% tax on the US subsidiary earnings to get to the 15% minimum.

Timing

Some countries have already enacted Pillar Two starting in 2024. Regardless of where the US stands in enacting (or not enacting), US companies in countries that have enacted it will be subject to its requirements.

Talk to us

If you have questions on the impact of Pillar Two, the memorandum impact, or questions about international tax and how to optimize your tax position, the Barnes Dennig team of top international tax pros is here to help. Contact us today. As always, we’re here to help.

 


Categories

Related Services

More Insights

Apply Now