White House Memorandum on Global Tax Deal
On January 20, 2025, the White House issued a memorandum declaring that the “OECD Global Tax Deal” lacks any legal authority in the United States.
This statement clearly rejects earlier commitments made by the U.S. regarding the Global Tax Deal, emphasizing that such agreements require Congressional approval.
Additionally, the memo assigns the Secretary of the Treasury the task of preparing a report for the President.
This report should outline protective measures and alternative strategies to address any foreign nations that either breach tax treaties with the U.S. or impose tax regulations that adversely affect American businesses.
Key Features of the Global Tax Deal
While the memorandum does not directly address any specific guidelines previously provided by the Internal Revenue Service (IRS) about the Global Tax Deal, it raises questions about whether these guidelines are considered commitments that the U.S. is now distancing itself from.
Moreover, it directs the Secretary of the Treasury to evaluate how well U.S. tax treaty partners are adhering to their obligations.
Consequently, it’s crucial for multinational corporations and their stakeholders to stay informed about any changes in U.S. tax policy related to the mandates outlined in this memorandum.
The Global Tax Deal is the result of over a decade of negotiation among OECD member countries and others, aiming to tackle the manipulation of tax codes by multinational corporations, often referred to as “base erosion and profit shifting” (BEPS).
One of the deal’s significant features is the introduction of a global minimum tax rate set at 15% on corporate profits, enforced through complex regulatory mechanisms.
Some countries would be empowered to impose what’s called a “top-up tax” on large multinational corporations, ensuring that their profits earned within those jurisdictions are taxed at the established minimum, even if they might evade local taxation due to existing laws or treaties.
Implications for American Businesses
Although the memorandum doesn’t specifically bring up the global minimum tax or any individual aspects of the Global Tax Deal, it presents the deal as a means for foreign countries to exert extraterritorial claims over U.S. income.
This could complicate the U.S.’s ability to craft tax policies that support American businesses.
The situation might escalate to retaliatory tax measures against U.S. firms if the nation doesn’t comply with foreign tax aspirations.
The administration believes that making clear the inapplicability of the Global Tax Deal in the U.S. boosts the country’s economic competitiveness and preserves its sovereignty.
In its first section, the memorandum instructs the Secretary of the Treasury and the U.S. Permanent Representative to the OECD to inform the OECD that previous commitments regarding the Global Tax Deal do not have validity unless sanctioned by Congress.
It also mandates that they take whatever additional steps are necessary to ensure alignment with these conclusions.
However, considerable ambiguity lingers around whether the memorandum signifies a withdrawal from past IRS guidance—such as Notice 2025-4—or clarifies the ongoing status of OECD BEPS regulations referred to in earlier communications.
Additionally, the memorandum outlines an expectation for the Secretary to work in conjunction with the United States Trade Representative, assessing whether any foreign countries are violating tax treaties or enforcing tax regulations that may be classified as extraterritorial or disproportionately harmful to American companies.
While no specific nations are mentioned, potential targets for scrutiny might involve those implementing the global minimum tax or various “digital services taxes” that some jurisdictions, including U.S. tax treaty partners, have enacted.
The Secretary is tasked with devising protective measures or responses to these concerns and must deliver findings and recommendations to the President within a 60-day timeframe.
In summary, as developments unfold from this memorandum, it will be crucial for stakeholders to keep a vigilant eye on the implications these changes might have on global tax environments and American enterprise competitiveness.
Source: Natlawreview.com