With Trump, what is left of the global minimum tax?

In 2021, more than 140 countries agreed a 15% global minimum tax (GMT) for large multinational companies. Welcomed as a success for the Group of 20 (G20), and the Organisation for Economic Co-operation and Development (OECD) which conducted the work behind the reform, the GMT aims to limit tax competition among nations and end tax havens. Its three-tier architecture incentivises adoption, as it is designed to mean that if one country does not tax low-tax profits, another will.

United States President Biden sponsored the international deal, but failed to pass it through Congress. Under President Trump, the US notified partners that it would not only withdraw from the agreement but would sanction any country applying the minimum tax to US companies. After months of negotiations, and US threats, the OECD delivered a deal sheltering American companies from the minimum tax. Is this the end of the GMT?

It is not. Despite its asymmetry, over 140 countries have endorsed the deal including China and all other G20 countries. Considering the tense status of international relations, the passage of any multilateral agreement is welcome. Second, US companies are not completely sheltered from the GMT – they will be subject to the US minimum tax, albeit at a lower rate (14%) and a much narrower base. Third, the US will recognise that low-tax countries are entitled to tax companies, including US companies, at the minimum 15% rate. Importantly, most former ‘tax havens’ have adopted the GMT. Overall, the ‘side-by-side’ system may give the US a competitive advantage, but it has not killed the minimum tax.

More worrying is the treatment of tax incentives, which the new agreement allows much more generously, and which may reduce the effective tax rate below the official 15%. It will be paramount to assess the impact of this opening to ensure it does not fatally undermine the implementation of the GMT.