The US president has distanced his administration from any commitment made by his predecessor to the OECD’s Global Tax Deal. Picture: iStock
The latest veiled warning by the Trump administration to introduce measures against countries that implement tax rules that may be seen as “extraterritorial” and “discriminatory” has complicated the successful implementation of the global tax deal.
The deal is the result of years of planning, designing, and agreeing by the Organisation for Economic Cooperation and Development (OECD) and G20 members on a new set of global tax rules under the Pillar One and Pillar Two solutions to address tax challenges created by digitalisation and globalisation.
South Africa enacted legislation at the end of last year and the beginning of 2025 to enable it to raise additional taxes under the Pillar Two solution, which introduces a global minimum tax of 15% on large multinational corporations.
Government expects to collect R8 billion from the global minimum tax in the 2025/26 tax year.
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However, President Donald Trump is threatening retaliatory measures against countries that are acting in a “discriminatory” manner against US citizens and corporations operating in foreign jurisdictions.
On the day of his inauguration, he signed an executive order instructing the secretary of the Treasury and the US trade representative to investigate whether any foreign countries are not in compliance with any tax treaty with the US, or have or are likely to put any tax rules in place that are extraterritorial or disproportionately affecting American companies.
The outcome and list of options for protective measures the US can adopt to respond to the non-compliance or tax rules must be delivered by 1 April this year.
One of the options is the introduction of double tax on non-US citizens and corporations if there is evidence of their home countries introducing discriminatory or disproportionate tax practices against US citizens and corporations. This option is available under the US Inland Revenue Code (Section 891).
Trump distanced his administration from any commitment made by his predecessor to the OECD’s Global Tax Deal.
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The executive order states that the deal allows extraterritorial jurisdiction over American income and limits the US’s ability to enact tax policies that serve the interests of American businesses and workers.
The OECD’s tax deal will now have “no force or effect” in the US.
Many of the large technology companies that will be caught in the net are US corporations like Microsoft, Apple and Meta.
Ruben Johannes, Deloitte’s Africa tax and legal partner and Pillar Two leader, says multinational companies operating in SA will have to file their first Pillar Two tax returns in 2026.
If they do not, they will be penalised R150 000 per month for every subsidiary in the group for non-compliance. These companies must already report the impact of the global minimum tax in their financial statements.
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Two days after Trump’s inauguration, Republican members of the House of Representatives’ Ways and Means Committee also introduced the Defending American Jobs and Investment Act.
According to an Ernst & Young tax news alert, a bill by the same name was introduced in 2023.
The bill requires the US Treasury Department to identify extraterritorial taxes and discriminatory taxes enacted by foreign countries that affect US businesses, such as the undertaxed profits rule (UTPR).
This rule falls under the Pillar Two provisions of the OECD’s blueprint and has been described as extremely complicated. Its implementation has been deferred given the lack of consensus on the way forward by countries that are part of the OECD’s inclusive framework.
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If the US Treasury does find evidence of discriminatory practices, the US tax rates on the US income of investors and corporations in those countries would be increased by five percentage points each year for four years up to a maximum increase of 20 percentage points.
The tax rates would remain elevated by 20 percentage points while the discriminatory or extraterritorial taxes remain effective, writes international firm Weil Tax in a published article.
Weil Tax notes that Trump’s view of the Global Tax Deal is not surprising given his comments during and following the election.
However, these executive orders go a step beyond US nonconformity.
They now implement certain potential retaliatory measures against countries implementing tax rules with “extraterritorial” or “discriminatory” (and potentially “disproportionate”) effect.
This article was republished from Moneyweb. Read the original here.
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