Trump’s Withdrawal from OECD Pillar Two: What We Know
President Trump withdrew U.S. support from the OECD’s global tax deal. He also directed the Treasury Department to identify countries imposing taxes unfairly, targeting U.S. companies or taxing beyond their borders, proposing counter-measures within 60 days.
The following are targeted specifically:
- Undertaxed Profits Rule (UTPR) – considered as extraterritorial taxation
- Digital Services Taxes (DSTs) – seen as unfairly targeting U.S. companies
Globally, Pillar Two remains in effect, with many countries already implementing it. As of today, 50+ countries have enacted Pillar 2 in their local jurisdictions (UK, EU countries, Japan, South Korea, Singapore, Thailand, Vietnam, South Africa, Malaysia, UAE to name a few), w. With many others expected to follow.
Jayde Thompson, Managing Director at Alvarez & Marsal states, “Pillar 2 is here to stay despite Trump’s withdrawal from OECD’s global tax deal. We may see some tweaks around the margins, like UTPR is abandoned, or safe harbour around UTPR are extended; US may even strike an agreement to get GILTI or CFC rules to be considered equivalent for two regimes.” Thompson added that “as we stand today, over 50 countries have implemented Pillar 2 already and others are sitting on the sidelines waiting. You have obligations, whether in forms of notifications, reporting requirements, or compliance. You cannot simply abandon the Pillar 2 implementation process.”“
Haryati Hamzah (Co-founder & Tax Technology Consultant, Intellista Consulting) adds, “Pillar Two might evolve to something different, but to wait and see and do nothing isn’t viable.”
Although many countries like US, India, China and more have not incorporated Pillar 2, this doesn’t mean that MNEs headquartered in these countries don’t need to do anything.
MNEs of such countries where these rules are not enacted yet, should continue to focus on Pillar 2 readiness and compliance for FY 2024 and beyond, if they operate out of even one country where Pillar 2 has been implemented.
What Trump’s OECD Exit Means for Businesses
- Short-term impact minimal: Trump’s withdrawal has little immediate effect, as the GloBE rules weren’t ratified by Congress and had no force or effect in the U.S, prior to the withdrawal.
- UTPR concerns still have time: The UTPR generally won’t take effect until 2025 or beyond. Furthermore, several countries have opted not to adopt UTPR as of now.
- Pillar Two is thriving globally: Pillar Two is deeply embedded globally with dozens of countries that have enacted the rules. In the EU, for example, it took a 27 member nations’ unanimity to pass the Directive implementing the rules, and the same unanimity is required to remove or alter them. Hence, registration and other filing requirements are around the corner in several countries and the deadlines have already lapsed in some.
- Three options ahead - We might see back and forth retaliatory tariffs and taxes, but that is an additional problem rather than a solution. Alternatively, a compromise might be reached allowing a reasonably harmonious coexistence between the GloBE rules and certain elements of U.S. tax law and policy. One such compromise would require adjustments to the U.S. GILTI and R&D tax credits. Another one, least favoured by the rest of the world because it undermines the very integrity of the Pillar Two structure, would be to render the UTPR safe harbor permanent.
Recommended Actions for Multinationals:
- Continue to focus on Pillar Two readiness and compliance.
- Stay up to date about global tax compliance as well as non-tax disclosures and filings, required under Pillar Two.
Haryati Hamzah advises that with the evolving tax landscape, tax leaders, especially of organizations that operate out of complex jurisdictions – where tax audit requirements and tax controversies are very high – can use this time as a catalyst for transformation. MNE tax leaders should leverage this situation to “look at their tax operating model including technology and talent mix and try to automate and streamline their routine tasks.”
Samuel Johnstone (Direct Tax Portfolio Lead, Asian Emerging Markets at Thomson Reuters) concludes, “Pillar Two is here to stay. Most multinationals are already actively preparing for compliance obligations, especially those coming in 2026.”
Stay Prepared and Informed:
Read our guide to Global Minimum Tax Compliance.ns must continue preparing for compliance if they operate in countries with Pillar Two obligations.
Watch our webinar on Tax Reporting for Global Compliance.
Simplify global compliance with ONESOURCE Tax Provision.
Explore Global Minimum Tax Solutions.
Access insights on Global Reporting Compliance.
