Tech Giants Relieved as Trump Executive Order Thwarts Global Tax Deal

The inauguration of President Donald Trump marked a turning point for the tech industry, as he signed an executive order that effectively reversed a potential tax liability under a global agreement.

Global Minimum Tax Agreement

In 2021, 140 countries reached an agreement aimed at addressing the "race to the bottom" on corporate income tax rates. The deal included two pillars:

* Pillar One: Multinational companies must pay taxes in countries where their customers are located, regardless of physical presence.
* Pillar Two: A global minimum tax rate of 15% for multinational corporations with revenue exceeding €750 million, regardless of operating location.

Trump's Executive Order

Trump's executive order solidified the US stance against implementing the global minimum tax deal. It also threatened retaliation against countries that penalize US companies through additional taxes.

Implications for Tech Companies

The global tax deal posed a significant concern for tech giants, as the US research and development (R&D) tax credit could reduce their effective tax rate below the 15% minimum threshold. This would make them vulnerable to the undertaxed profits rule, which allows countries to levy additional taxes on companies underpaying in other jurisdictions.

Trump's Executive Order's Impact

Trump's executive order effectively neutralizes the threat of the global minimum tax deal for US companies. It eliminates the need for Pillar Two implementation and prevents the undertaxed profits rule from impacting American tech giants.

Unnecessary Intervention

However, the executive order may have been unnecessary, as the Biden administration had not moved to implement the deal and Republicans strongly opposed it. Additionally, Former Treasury Secretary Janet Yellen was negotiating an allowance that would protect US companies using the R&D tax credit.