U.S global tax and trade policy may be significantly altered by a pair of executive orders the White House issued on Jan. 20, 2025. The first executive order repudiates the United States’ commitment to the Organisation of Economic Co-operation and Development (OECD) Pillar Two framework, directing the Treasury Department to assess foreign tax regimes for compliance with U.S. treaties and potential discriminatory effects on American businesses.

The second executive order authorizes the unprecedented use of section 891 of the Internal Revenue Code, as amended, which could double U.S. tax rates on income earned by foreign companies and individuals in the United States. This measure, intended as a retaliatory tool against countries with discriminatory tax laws, poses significant risks for foreign investment in the United States.  

These policy shifts have broad implications for both U.S. and foreign companies investing in the United States. Both U.S. and foreign companies should carefully evaluate these policy shifts and potential impacts on their tax strategies and financial operations.

U.S. Blocks Global Tax Pact’s Legal Impact, Orders Treasury to Investigate Foreign Tax Rules

The order makes it clear that the global tax deal, which was agreed upon by nearly 140 countries (including the U.S. under the Biden administration), will have no legal effect in the United States. It effectively cancels out any obligations tied to the OECD framework, stating that until Congress steps in, these rules simply won’t apply.

At the same time, the order instructs the Secretary of the Treasury to look into the tax policies of U.S. treaty partners. The goal here is twofold: first, to ensure that these foreign tax rules don’t violate existing U.S. tax treaties, and second, to identify and potentially counter any measures that might unfairly hurt American businesses.

How This Might Affect U.S. Tax Policy and IRS Guidance

Although the order doesn’t specifically mention current IRS guidance on the global tax deal, it does create uncertainty about whether that guidance is now considered a binding commitment. In other words, there’s a question as to whether the existing rules and guidelines might also be subject to change or even rejection.

By tasking the Treasury with reviewing international tax policies, the order signals that the U.S. may soon adopt measures to protect American interests against what it sees as extraterritorial or biased foreign tax practices.

What This Means for Multinational Companies

This shift has important implications for both U.S. and international multinational enterprises (MNEs). Companies that operate across borders now need to reexamine their tax planning and compliance strategies. With the U.S. pulling back from the global tax deal, the international tax landscape could become more complex and unpredictable, impacting business decisions and investments.

Background of the Global Tax Deal

The global tax deal emerged after more than ten years of negotiations under the OECD and involved countries agreeing on measures to combat Base Erosion and Profit Shifting (BEPS). A key element of the deal was the introduction of a 15% global minimum tax rate. This “top-up tax” was designed to ensure that profits are taxed at this minimum rate, even if the jurisdiction where they are earned doesn’t enforce such a tax.

Critics of the deal, including those behind the executive order, argue that it gives foreign countries undue influence over U.S. tax policy. For example, policies like research and development credits, which help U.S. companies lower their effective tax rates below 15%, could be at odds with the global tax deal’s requirements. Additionally, there are concerns that the deal could lead to retaliatory tax measures from other nations targeting U.S. businesses.

Summary

The Global Tax Deal EO marks a significant shift in U.S. tax policy by rejecting a key international agreement on tax matters unless Congress explicitly endorses it. This move not only challenges the existing framework that many countries have agreed to but also opens the door for the U.S. to take a more protective—and potentially confrontational—stance against foreign tax practices that are seen as harmful to American business interests. Both U.S. and international companies will need to keep a close eye on these developments as they plan for the future in an evolving global tax environment.