Trump signs memorandum, US withdraws from OECD global tax deal

Key Points:

• In a series of actions on the first day of President Trump's second term, a presidential memorandum indicated that the United States would effectively withdraw from arrangements related to the so-called "global tax deal" reached with the Organisation for Economic Co-operation and Development (OECD).
• The memorandum directs the Treasury Secretary, in coordination with the U.S. Trade Representative, to notify the OECD that any commitments made by the Biden administration "have no force or effect in the United States." Currently, David Lebryk, Assistant Secretary of the Treasury for Financial Affairs, is serving as Acting Treasury Secretary, while Trump's nominee for Treasury Secretary, hedge fund manager Scott Bessent, is still awaiting full Senate approval.
• Additionally, the order takes a proactive stance, directing the Treasury Secretary to investigate whether foreign countries are not complying with U.S. tax rules or agreements, or whether they have implemented or may implement rules that "disproportionately affect U.S. companies." According to the memorandum, findings and recommendations, including proposed protective measures, must be submitted to Trump within 60 days.

In-Depth Analysis:

Former Treasury Secretary Janet Yellen was a key driver in the OECD-led negotiations that led more than 130 countries to agree to implement global tax rules, including the so-called "Pillar Two," which aims to set a global minimum effective tax rate of 15%, as previously reported by CFO Dive. This framework was partly designed to curb tax havens and prevent companies from basing their headquarters in the lowest-tax countries.

But the deal failed to gain momentum in the United States, partly due to opposition from Republican lawmakers, some of whom argued it would weaken U.S. competitiveness and discourage investment in the country, CFO Dive previously reported.

Trump's action against the OECD is not surprising, but it signals that without congressional action, the global minimum tax deal will not advance in the United States, said Kevin Jacobs, managing director and head of the national tax office at tax firm Alvarez & Marsal.

"This isn't necessarily a full withdrawal, but rather a requirement that Congress agree to the deal, whereas previously the U.S. was seen as one of the main driving forces," Jacobs said in an interview. "They're sending a clear signal: 'We want to revisit the commitments that were made'... Like many things, it's a waiting game to see what all the implications are."

The part of the order requiring an investigation into other countries' tax rules was more surprising to Jacobs. "This really caught many people off guard, especially as a Day One provision," he said.

Separately, Aruna Kalyanam, global tax policy leader at one of the Big Four accounting firms, Ernst & Young, noted in emailed comments to CFO Dive that the memorandum did not reveal any unexpected stance on how the Trump administration would approach OECD policies. Meanwhile, the memorandum lays the groundwork for investigating how other countries treat U.S. companies on tax matters and "clarifies what 'America First' and 'American Companies First' mean for multilateral agreements in Trump's second term," she said.

"We can expect the Treasury Department and the U.S. Trade Representative to provide a systematic analysis of unfavorable tax conditions in international operations reported by U.S. companies, and importantly, a list of how and what the U.S. should and could respond to policies it deems anti-American or discriminatory," Kalyanam wrote.