Tech Giants Breathe a Sigh of Relief as Trump Blocks Global Minimum Tax

On Inauguration Day, tech industry leaders stood proudly behind President Donald Trump. Hours later, he delivered an executive order that addressed a major tax concern for these companies.

In one of his numerous executive orders signed that Monday, Trump declared that the US would not implement a global minimum tax agreement signed by 140 countries. This agreement aimed to curb a "race to the bottom" in corporate income tax rates.

The order clarifies the US's stance on the global minimum tax deal. Trump warned of retaliatory measures if other countries penalized US companies with extra taxes, a threat that likely resonated with tech executives.

Understanding the Global Minimum Tax

The 2021 agreement proposes a two-pronged approach:

* Pillar One: Requires large multinationals to pay taxes in countries where their customers reside, even without physical operations.
* Pillar Two: Sets a global minimum tax rate of 15% for multinationals with revenue exceeding €750 million (~$788 million), regardless of their location. Countries adopting Pillar Two can also levy extra taxes on companies operating in low-tax jurisdictions.

Concerns for US Tech Companies

Pillar Two poses a challenge for US tech companies due to the way it calculates tax rates. The US corporate tax rate is 21%, but the research and development (R&D) tax credit reduces the effective tax rate below the 15% threshold, potentially triggering the undertaxed profits rule.

Trump's Executive Order

Trump's executive order blocks the implementation of Pillar Two, eliminating this tax headache for tech giants and other companies that heavily utilize the R&D tax credit.

Potential Unnecessary Move

While the Biden administration supported the global minimum tax, Congress had not initiated any legislative action. The Trump administration was also negotiating an exemption for the R&D tax credit. A safe harbor rule would have protected the US from the undertax rule as well.

Retaliation Warning

Trump's warning of retaliation serves as a reminder that the US will not hesitate to protect its interests in the global tax landscape.