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US issues Executive Order on BEPS 2.0
- One Executive Order that US President Trump issued on 20 January states that the OECD Global Tax Deal has no force and effect in the US and directs the US Treasury Secretary to develop options for response, with a report to be delivered to the President in 60 days.
- Companies should monitor developments in this area, including the Treasury Secretary’s forthcoming report, in evaluating the implications for the global tax environment.
Executive summary
Following his inauguration on 20 January 2025, United States (US) President Trump issued numerous Executive Orders on a variety of policy issues, including one on the Organisation for Economic Co-operation and Development (OECD) “Global Tax Deal.”1 The Executive Order states that the Global Tax Deal has no force and effect in the US. It further provides for the US Treasury Secretary to develop options for responding to foreign countries’ tax rules that are extraterritorial in nature or that could disproportionately impact US companies, with findings and recommendations to be delivered to the President.
Detailed discussion
The Executive Order describes the Global Tax Deal as allowing extraterritorial jurisdiction over US income and limiting the ability of the US to enact tax policies that serve the interests of US businesses and workers.
The Order directs the US Treasury Secretary and the US Ambassador to the OECD to notify the OECD that any commitments made by the prior administration regarding the Global Tax Deal have no force and effect in the US absent an act by the US Congress adopting the relevant provisions.
In addition, the Order directs the US Treasury Secretary, in consultation with the US Trade Representative, to investigate whether any foreign countries are not in compliance with any US tax treaty or have any tax rules in place (or are likely to put any tax rules in place) that are extraterritorial or disproportionately affect US companies. They are further directed to develop options for protective measures or other actions that the US should adopt or take in response. The Treasury Secretary is to deliver findings and recommendations to the President within 60 days.
A separate Executive Order on US trade policy also addresses extraterritorial or discriminatory taxation by foreign countries.2 That Order directs the US Treasury Secretary, in consultation with the US Commerce Secretary and the US Trade Representative, to investigate whether any foreign country subjects US citizens or corporations to extraterritorial or discriminatory taxation, referencing Section 891 of the US Internal Revenue Code, which provides for doubling the US tax rates on citizens and corporations of countries that do so. The Treasury Secretary is to deliver the results of this investigation to the President by 1 April 2025.
On 22 January 2025, referring to the Executive Order on the Global Tax Deal, US House Ways and Means Committee Chairman Jason Smith (R-MO) and all the Republican members of the committee (which has jurisdiction over tax matters in the House of Representatives), introduced the Defending American Jobs and Investment Act (H.R. 591). Like the bill of the same name that was introduced by Chairman Smith and Republican members of the committee in 2023, the bill would require the US Treasury Department to identify extraterritorial taxes and discriminatory taxes enacted by foreign countries that affect US businesses, such as the Under Taxed Profits Rule (UTPR). Under the bill, the US tax rates on US income of investors and corporations in those countries would be increased by five percentage points each year, up to a maximum increase of 20 percentage points. Over the past several years, Chairman Smith, other Republican members of the Ways and Means Committee and Republicans on the US Senate Finance Committee (which has jurisdiction over tax matters in the Senate) have voiced strong objections to foreign countries’ application of the UTPR on the US earnings of US companies.
Implications
Companies should pay close attention to ongoing developments related to these Executive Orders. including any formal statements that may be made by the OECD3 and reactions of other countries that are participating in the OECD/G20 Inclusive Framework. It will be important to monitor what implications this will have for work in the Inclusive Framework on Pillar Two Administrative Guidance and other technical matters, as well as legislative activity related to Pillar Two implementation in relevant countries.
The options, findings and recommendations to be delivered by the US Treasury Secretary represent a crucial next step. Those reports will provide new information that will be essential in evaluating the global tax environment businesses will face.
Companies also should continue to monitor tax legislative activity in the US, including the bill reintroduced by the House Ways and Means Committee Chairman and Republican members that would impose increased US taxes on foreign business activity in the US in response to Pillar Two and other extraterritorial or discriminatory tax measures enacted by foreign countries.
For additional information concerning this Alert, please contact:
Ernst & Young LLP (United States)
- Barbara M Angus
- Rebecca O Burch
- Craig A Hillier
- Jeff R Levey
Ernst & Young Belastingadviseurs LLP, Netherlands
- Ronald van den Brekel
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.