It was only a matter of time before Donald Trump’s war on what we used to know as the global economy spilled over from trade to other areas. Sure enough, while his trade war is set for a new phase next week — when the US president’s “liberation day” tariff schedule is supposed to come into effect — we have just witnessed the first skirmish on the second front, over taxes.
In 2021, countries led by the G7 and the OECD reached a compromise on how to reform tax rules for international companies. A failure to update an old web of bilateral tax treaties aiming to avoid double taxation had led, too often, to a situation of double non-taxation, with loopholes too easily allowing corporations to pretend their profits were made in low- or zero-tax jurisdictions. The “base erosion and profit shifting” efforts eventually arrived — in no small part thanks to Trump’s first Treasury secretary Steven Mnuchin — at new rules by which countries may tax companies active in their jurisdictions if those companies are inadequately taxed elsewhere.
But giving other countries taxing rights to US corporates’ profits was never going to go down well with the president. Insistence on tax sovereignty for America and opposition to extraterritoriality by others are a bipartisan matter in Washington. Given Trump’s pugilism, a conflict was bound to come to a head. The question is how other countries choose to respond.