- President Trump has signed two executive orders to target Pillar Two (and potentially Pillar One) of the OECD’s Global Anti-Base Erosion Rules.
- This could impact foreign countries that impose extraterritorial taxes such as Digital Service Taxes (DSTs) or an Under Taxes Payments Rule (UTPR) on U.S. corporations.
In his first day in office, President Trump issued two executive orders that impact the Organization for Economic Co-Operation and Development (OECD) Global Anti-Base Erosion Model Rules.
The first executive order entitled The Organization for Economic Co-operation and Development Global Tax Deal provides:
- The Global Tax Deal will have no force and effect in the United States; and
- Authorizes the Treasury to develop options, which could include tariffs, to address foreign countries that enact tax laws that are extraterritorial in nature, disproportionately impact U.S. companies, or impact income tax treaties.
- Report must be delivered to the president within 60 days.
The second executive order entitled America First Trade Policy:
- Requires Treasury, in consultation with U.S. Commerce Secretary and U.S. Trade Representative, to investigate whether any foreign countries impose discriminatory or extraterritorial taxation on U.S. citizens or corporations.
- Specifically references Section 891 (enacted in 1938) of the Code which provides for a doubling of the U.S. tax rate on foreign citizens and corporations by presidential proclamation if such taxation exists.
- Requires Treasury to deliver a report on the investigation to the president by April 1, 2025.
In addition, the House Ways and Means Committee introduced the Defending American Jobs and Investment Act. If passed, this legislation would impose an additional tax of 5%, increasing up to 20% over the next four years, on the U.S. income of wealthy foreign investors and corporations in jurisdictions that have enacted certain extraterritorial taxes such as the UTPR.
Action Items and Important Dates
Several countries are set to enact UTPRs in tax year 2025, potentially impacting U.S. parent companies with subsidiaries in foreign jurisdictions. The OECD has provided a transitional UTPR safe harbor through December 31, 2026, eliminating the UTPR top-up tax if the ultimate parent entity of a multinational group is located in a jurisdiction with a statutory corporate income tax rate of at least 20%.
It is unclear whether these executive orders would impact transfer pricing safe harbors set forth in Notice 2025-04.
Forvis Mazars is closely monitoring the unfolding global tax landscape for changes that could impact the largest multinational businesses. Contact a Forvis Mazars professional to discuss how these developments could affect Pillar Two implementation and reporting.