Global Minimum Tax Deal: Trump's Executive Order Exempts US Tech Giants

On Inauguration Day, President Donald Trump signed an executive order suspending the US's participation in a global minimum tax deal, potentially easing a tax burden for major tech companies.

Background: The Global Minimum Tax Deal

In 2021, 140 countries agreed to a two-part plan:

* Pillar One: Multinational companies to pay taxes in countries where customers are located, even without physical operations there.
* Pillar Two: Global minimum tax rate of 15% on multinational corporations with revenue exceeding €750 million.

Pillar Two includes an "undertaxed profits rule" (UTPR) that allows countries to levy additional taxes on companies paying below the 15% threshold in other jurisdictions.

Trump's Executive Order

Trump's order:

* Signals the US's withdrawal from the global minimum tax agreement.
* Warns of retaliation if other countries punish US companies for taking advantage of tax loopholes.

Impact on Tech Giants

The R&D tax credit in the US reduces the effective tax rate of companies like Meta, Google, and Amazon below 15%. This made them vulnerable to UTPR under the global tax deal. Trump's order exempts them from this potential penalty.

Biden's Stance

While the Biden administration supports the global minimum tax, it has not attempted to legislate it into law. Former Treasury Secretary Janet Yellen sought exceptions for US companies to account for the R&D tax credit.

Analysis

Trump's executive order may prove unnecessary as the US was already protected from UTPR. However, it serves as a reminder of the US's power to resist international agreements it deems unfavorable.