Tax

On January 20, 2025, President Trump signed two Executive Orders signaling a marked departure from Former President Biden’s Administration on global tax and trade policy. The first Executive Order (the “Global Tax Deal EO”) takes aim at the Organization for Economic Cooperation and Development (“OECD”) two pillar project and essentially nullifies the U.S.’s agreement to the project (such project, the “Global Tax Deal”). The second Executive Order (the “America First Trade Policy EO”) includes a retaliatory (and never before used) provision of the U.S. Internal Revenue Code of 1986, as amended (the “Code”)¹ that, if triggered, could double the tax rate imposed on the U.S. income of companies and individuals of foreign countries whose laws are found to discriminate against U.S citizens or companies.

Global Tax Deal Executive Order:

The Global Tax Deal, in basic terms, is the outcome of over a decade of negotiation by various members of the OECD and other countries to address the perceived abuses of “base erosion and profit shifting” (“BEPS”) by multinational corporations to reduce their overall effective tax rate.  One important aspect of the Global Tax Deal is the imposition of a global minimum tax rate of 15% on corporate profits (including through a series of bespoke mechanics which provide for the ability to impose a “top-up tax” on large multinationals to ensure that profits derived in a country are subject to the minimum tax, without regard to whether such multinational would otherwise be subject to tax on those profits in that country, either by application of an applicable tax treaty or under the laws of that country).  The Global Tax Deal EO directs the Treasury Secretary and the U.S. Permanent Representative to the OECD to notify the OECD that any commitments related to the Global Tax Deal have no force or effect (barring U.S. Congressional action to approve its provisions, which is unlikely in the near-term given the political composition of U.S. Congress).

Weil Tax Observation: While the Global Tax Deal EO does not specifically address the global minimum tax, the Global Tax Deal EO notes that the Global Tax Deal allows “extraterritorial jurisdiction over American income” (presumably, for example, by allowing the imposition of a top-up tax by another country). It is not clear whether President Trump’s Administration intends for the Treasury Secretary to withdraw prior published guidance by the IRS (e.g., Notice 2025-4), or what the effect of those components of OECD BEPS authority incorporated by reference in published guidance does, or does not, still have. Notably, the Global Tax EO does not reference previously published guidance and whether such guidance would be considered a “commitment” of the U.S. that is renounced in the Global Tax Deal EO.

The Global Tax Deal EO also instructs the Treasury Secretary (together with the U.S. Trade Representative) to

“investigate whether any foreign countries are not in compliance with any tax treaty with the United States or have any tax rules in place, or are likely to put tax rules in place, that are extraterritorial or disproportionately affect American companies, and develop and present to the President, through the Assistant to the President for Economic Policy, a list of options for protective measures or other actions that the United States should adopt or take in response to such non-compliance or tax rules.”

Weil Tax Observation: While no specific authority is cited for what constitutes a tax rule that is “extraterritorial” or “disproportionate” to “American companies”, it is possible that it is intended to address the potential gaps in Section 891 (as discussed further below), although the wording of Section 891 statute is slightly different from the language used in the Global Tax Deal EO (e.g., Section 891 uses the word “discriminatory” instead of “disproportionate”). It is possible that “extraterritorial” or “disproportionate” tax rules include both rules implementing the global minimum tax (including the top-up tax) as well as what are colloquially referred to as ‘digital services taxes’, which have been implemented by certain non-U.S. tax treaty partners. As far as “protective measures” are concerned, the American First Trade Policy EO, described below, explicitly directs the U.S. Treasury to investigate whether any foreign country subjects U.S. citizens or corporations to discriminatory or extraterritorial taxes pursuant to Section 891 of the Code, so it is possible that Section 891 is used as a tool under the Global Tax Deal EO. Similar options could include rules like those contained in the “Defending American Jobs and Investment Act” reintroduced by House Ways and Means Chairman Jason Smith on January 22, 2025 (which would – after finding that a non-U.S. country has adopted discriminatory or extraterritorial taxes – increase the rate of taxes on the U.S. income of investors and corporations in that foreign country by 5 percentage points per year for four years, after which the tax rates would remain elevated by 20 percentage points while such discriminatory or extraterritorial taxes remain in effect).

American First Trade Policy Executive Order:

In general this Executive Order requires a variety of reports and recommendations to be delivered to President Trump on a variety of issues, including but not limited to instructing the U.S. Treasury to investigate whether any foreign country subjects U.S. citizens or corporations to discriminatory or extraterritorial taxes within the meaning of Section 891 of the Code. Section 891 permits the President to proclaim the doubling of certain U.S. tax rates due by citizens and corporations of such foreign countries (subject to certain caps) but has never been used.

Weil Tax Observation: It is unclear whether the doubling of taxes under Section 891 would be salient given that under a significant number of tax treaties between the U.S. and non-U.S. countries several items of cross-border income (though not all) have a zero (or significantly lower than statutory 30%) rate of tax. For example, given such U.S. tax treaties take precedence over statute, it is unclear what effect an increased rate under Section 881 to FDAP income (pursuant to the authority under Section 891) would have if the applicable treaty rate on such income is zero percent (or any lower rate than what is statutorily provided – e.g., lower 30% now and potentially lower than 60% by reason of the application of Section 891).

While President Trump’s view toward Global Tax Deal EO is unsurprising in light of his comments during (and following) the election, the Executive Orders go a step beyond U.S. nonconformity as they now implement certain potential retaliatory measures against countries implementing tax rules with “extraterritorial” or “discriminatory” (and potentially “disproportionate”) effect.

The interaction of these Executive Orders with existing U.S. tax treaties and potential tariffs will certainly be something to keep an eye on going forward.