Donald Trump threatens to double tax rates on foreign nationals and businesses

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 Section 891 of the US tax code that allows him to retaliate against foreign countries by imposing punitive taxes on their citizens. and their businesses. 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 section 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 that foreign country without needing Congressional approval.

This [invoking Section 891] This is the most extreme option and it's interesting that they are threatening to use it in the first place, said Alex Parker, director of tax legislative affairs at Eide Bailly. Based on the way the bill is written, 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 on notice signatories to the OECD agreement, including EU member states, the United Kingdom, the South Korea, Japan and Canada, which Washington plans to challenge global tax rules. .

European leaders clashed with Trump during his first term as president 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 customs officers.

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 into whether foreign countries are violating a tax treaty with the United States or have tax rules in place, or are likely to put tax rules in place , which are extraterritorial or disproportionately affect the United States. businesses.

Everett Eissenstat, a partner at Squire Patton Boggs and a former Trump administration official, said the trade notes and those of the OECD represented the fusion of tax policy and trade policy, which really took root over the course of this term of the Trump presidency.

He added: “It's probably aimed at jurisdictions where companies have hosted a lot of their intellectual property, like Ireland, and it's 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 Department of Commerce and now at SEC consultancy Newgate, said the move showed Trump was widening the net of economic warfare well beyond tariffs, in response to what the United States considers discriminatory practices on the part of 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 these interrelated measures, known as the undertaxed profits rule, has long angered Republicans, with the 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. This is 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 the Economy, said that while the European Commission regrets the tax announcement, it wants to take the time to discuss the issue with the new US tax administration.

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

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