Tax News & Views International Weekly: A Global Tax Meeting

The Inclusive Framework, the 147-jurisdiction advisory group formed by the Organization for Economic Cooperation and Development as part of its project to overhaul the global tax system, is holding its first meeting of the second Trump era this week, in Cape Town, South Africa.

While most of the meeting will happen behind closed doors, it's sure to be a vastly different proceeding than the meetings of the past few years. The U.S. is now openly reneging on its participation in the Two-Pillar project, including the 15% global minimum tax that President Joe Biden touted as a major accomplishment in 2021. The Trump administration has investigated retaliation against countries which use the global minimum tax (also called Pillar Two) against U.S. companies, and while they have yet to publicly follow up on their initial announcement, few expect the U.S. Treasury Department to take a conciliatory approach to negotiations.

Also, some key Treasury officials, such as Kenneth Kies, President Trump’s pick to be assistant secretary for tax policy, are still awaiting confirmation, which could be slowing down technical negotiations. (Rebecca Burch, previously at Ernst & Young LLP, was announced Monday as the deputy assistant secretary for international tax affairs, a key figure in the OECD dealings which does not require Senate confirmation.)

All that said, there are still a few faint lingering hopes that the sides might be able to find common ground--or at least areas where they can agree to disagree.

One of the biggest obstacles to overcome is how Pillar Two treats non-refundable tax credits such as the U.S. credit for research and development. Currently, companies that claim the R&D credit are at risk for being taxed under the Pillar Two regime by foreign countries where they operate, if their effective tax rate drops below 15%. That’s true even if their rate is only that low in the U.S.--the Pillar Two system looks at all of the countries where a company operates, which is one of the biggest points of contention between the OECD and U.S. critics.

One potential solution that’s been floated by some is to grant favorable treatment to the R&D credit, and other credits which are based on company expenditures–rather than a company’s profits. The argument here is that credits which are based on spending are far less likely to promote income-shifting or abuse than open-ended credits that rise with a company’s profits. This change would benefit the U.S., but many other countries as well.

Another hope is that the OECD may be convinced to permanently extend the transitional safe harbor which grants companies some protections against Pillar Two if they’re based in a country with at least a 20% headline corporate tax rate. (Perhaps not coincidentally, the U.S. corporate rate is 21%). But the justification for the safe harbor, which only lasts through 2025, is that companies shouldn’t be punished while their home jurisdictions set up Pillar Two legislation. Can nations be convinced to extend it permanently?

Trump hasn't been shy about shaking up multilateral institutions and agreements in pursuit of what he sees as America's best interests--but as today's tariff announcement shows, his desire to make deals isn't completely gone, either.

Speaking of Tariffs....

As of this afternoon, Trump's 90-day pause on most of the reciprocal tariffs is still in force. But that doesn't mean that all multinational businesses are suddenly in the clear. Here are some recent looks at the global shakeup.

U.S. Tariffs Solidify MEPs’ Stance on EU Competition Rules – Elodie Lamer, Tax Notes ($):

U.S. pressure over the EU's Digital Market Act (DMA), which regulates the practices of large digital services providers (the so-called gatekeepers), is casting a shadow on the bloc's annual report on competition policy. The report was adopted in the EP’s economic and monetary affairs committee April 8 by a vote of 36 to 7. MEPs said the DMA should be applied rigorously “without being undermined by external pressures,” and emphasized that “the DMA and potential fines must not be a bargaining chip in relation to discussion on tariffs.”

US Tariff Revenue Gains Seen as Undercut by Declining Trade – Jarrell Dillard, Bloomberg Tax ($):

All of the tariffs Trump has imposed, along with those he has threatened, since January would generate around $300 billion in annual revenue on average, according to an analysis from Bloomberg Economics. That’s at the low end of the range, with Treasury Secretary Scott Bessent having floated a figure of up to $600 billion.

The lower figure reflects expectations for a sharp downturn in trade. As a result of tariffs, total US imports of goods are expected to drop by around 30%, according to the Bloomberg Economics modeling.

Starmer Calls For US Trade Deal That Avoids Tax Hikes – Josh White, Law360 Tax Authority ($):

The Labour government would sign a trade deal with the U.S. only if the terms fit Britain's national interest, which would mean avoiding the need for further domestic tax hikes, Prime Minister Keir Starmer said in a news conference Monday.

Starmer pledged more support for the British car industry, including subsidies and changes to net-zero emissions rules, in response to U.S. tariffs hitting the sector last week. He stressed that the government still hopes to cut a deal in his speech at Jaguar Land Rover's plant in Solihull.

Using Tariffs to Make Canada a State? It's Been Tried Before – Joseph Thorndike, Tax Notes ($):

If Canadians are taking Trump seriously, it’s understandable: They’ve been down this road before. The United States has had designs on Canada for centuries, stretching back to the earliest days of American nationhood. More to the point, this isn’t the first time Americans have weaponized tariffs in the service of annexation: U.S. political leaders tried it in the 1890s, too.

Other International Tax Items

US Reassessment Of OECD Tax Deal Is Right Move – Anne Gordon, Law360 Tax Authority ($):

The wholesale review of the OECD framework, tax treaties and potential U.S. remedies ordered by Trump is a positive step that could ultimately create a more durable international tax system. American companies support a reset of the negotiations, especially if they result in a tax system that provides long-term certainty, clarity and stability while also maintaining U.S. sovereignty.

Latest CBC Data Show Some Tax Havens Losing Their Appeal – Martin Sullivan, Tax Notes ($):

In recent years, Ireland, Singapore, and Switzerland have become especially attractive because of the increased acceptance of the principle that mobile profits should be co-located with economic substance. Multinationals commonly use Ireland and Singapore as regional headquarters as well as manufacturing locations. Still, it should be noted that their profit levels relative to traditional indicators of economic substance — such as the number of employees and the amount of tangible assets — far exceed the levels observed in major industrial countries with higher tax rates.

Public Domain Superhero of the Week

Every week, a new character from the Golden Age of Comics, who’s fallen out of use.

This week’s entry: The Blue Streak

Debut Year:1945

Debut Publication: Headline Comics #13

Origin Story: A skilled acrobat whose family is killed by mobsters. (A bit familiar.)

Superpowers: No superpowers, but he's a skilled acrobat and daredevil.

Eide Bailly's International Tax Team and our affiliates at HLB, The Global Advisory and Accounting Network, stand ready to assist with your worldwide tax needs.