Tech Giants Relieved as Trump's Executive Order Halts Global Minimum Tax

On Inauguration Day, prominent tech executives witnessed President Trump sign an executive order suspending a potential tax headache. The order targets a global minimum tax agreement signed by 140 countries, safeguarding US companies from its potential impact.

The Global Minimum Tax Deal

The 2021 deal comprises two pillars:

* Pillar One: Multinational corporations must pay taxes in customer-based countries, even without physical presence.
* Pillar Two: Establishes a global minimum tax rate of 15% for multinational corporations with revenues exceeding €750 million (~$788 million).

Concerns for Tech Companies

The research and development (R&D) tax credit in the US is considered a tax reduction under Pillar Two, potentially lowering effective tax rates below the 15% threshold. This could subject tech giants to the undertaxed profits rule (UTPR), which allows countries to impose additional taxes on companies underpaying taxes elsewhere.

Tech giants like Meta, Alphabet (Google), and Tesla have reported effective tax rates below 15% due to the R&D credit. Trump's executive order effectively halts the potential implementation of the UTPR on US companies.

Biden Administration's Stance

While the Biden administration backed the global minimum tax, Congress had yet to legislate it. The Trump administration sought an allowance exempting US companies utilizing the R&D credit. A safe harbor rule would have further shielded the US from the UTPR.

Trump's Retaliation Threat

Trump warned of retaliation against countries that impose additional taxes on US companies through the UTPR. This threat signals the US's unwillingness to accept penalties that could hinder its tech sector.

Conclusion

Trump's executive order is a welcome relief for tech giants and other companies utilizing the US R&D tax credit. While the global minimum tax deal remains in limbo, the order halts its potential impact on US companies, demonstrating the Trump administration's commitment to protecting American businesses.