01-30-2025

The Organization for Economic Co-Operation and Development (OECD) Global Tax Deal (Global Tax Deal)

MemorandumView the Original .pdf
View the Original .pdf

The 1-Minute Brief

What: This executive memorandum, issued on January 20, 2025, declares that the Organization for Economic Co-operation and Development (OECD) Global Tax Deal has no legal force in the United States without congressional approval. It directs the Secretary of the Treasury to notify the OECD of this and to investigate potential discriminatory or extraterritorial taxes imposed by foreign countries on American companies.

Money: The memorandum itself does not have a direct financial score from the Congressional Budget Office (CBO). However, the OECD estimates its global minimum tax (Pillar Two) could generate an additional $150 billion in global tax revenue annually. The Joint Committee on Taxation estimated that one part of the deal (Amount A of Pillar One) could cause a net loss of tax revenue for the U.S. of about $1.4 billion in a single year.

Your Impact: For the average American, the direct impact is minimal in the short term. The primary effect is on large U.S. multinational corporations, who may face higher taxes in foreign countries that have adopted the deal. This could indirectly affect Americans through changes in corporate investment, stock values, or, potentially, the prices of goods and services.

Status: This is an executive action (Presidential Memorandum) that has been issued and is in effect as of January 20, 2025.

What's Actually in the Bill

This executive memorandum formally withdraws the United States from its prior commitment to an international tax agreement known as the OECD Global Tax Deal. It asserts that the agreement is not binding on the U.S. unless Congress passes legislation to enact it. The action aims to prevent other countries from having what the memorandum terms "extraterritorial jurisdiction over American income" and to preserve the U.S.'s ability to set its own tax policy.

Core Provisions:

  • Nullification of Prior Commitment: The memorandum declares that any commitment made by the previous administration to the OECD Global Tax Deal is considered to have no force or effect in the United States.
  • Congressional Authority: It explicitly states that the deal's provisions will not be adopted without an act of Congress.
  • Investigation of Foreign Taxes: It directs the Secretary of the Treasury, in consultation with the U.S. Trade Representative, to investigate foreign tax practices. The goal is to identify any that are extraterritorial or that "disproportionately affect American companies."
  • Protective Measures: The Secretary of the Treasury must develop and present a list of potential protective measures or other actions for the President to take in response to such foreign tax rules within 60 days.

Stated Purpose (from the Sponsors):

The memorandum states its purpose is to "recapture our Nation’s sovereignty and economic competitiveness."

  1. It claims the OECD deal limits the United States' ability to set tax policies that benefit American businesses and workers.
  2. It argues the deal allows foreign countries to tax American income extraterritorially.
  3. It warns that without this action, American companies could face "retaliatory international tax regimes" if the U.S. does not comply with foreign tax objectives.

Key Facts:

Affected Sectors: Primarily Technology, Pharmaceuticals, and other sectors with large multinational corporations.
Timeline: The directive for the Treasury to investigate and report back on foreign tax measures is set for 60 days from January 20, 2025.
Scope: The memorandum's direct impact is on U.S. federal policy, but its implications are global, affecting international tax agreements and the operations of U.S. companies worldwide.

The Backstory: How We Got Here

Timeline of Events:

The Rise of Digital Giants and Tax Avoidance (2000s-2010s):

For decades, the global tax system was based on physical presence. The digital revolution allowed massive multinational corporations, particularly in the tech sector, to earn vast profits in countries where they had many users but no physical headquarters, allowing them to shift profits to low-tax jurisdictions or "tax havens." This practice, known as Base Erosion and Profit Shifting (BEPS), led to governments losing significant tax revenue.

The OECD's BEPS Project (2013-2021):

In response, the OECD, a group of mostly wealthy nations, launched the BEPS project in 2013 to combat corporate tax avoidance. After years of negotiations involving over 130 countries, a two-pillar global tax deal was finalized in October 2021.

  • Pillar One: Aims to reallocate a portion of the profits of the largest multinationals (especially digital giants) to the countries where their customers are located, regardless of physical presence.
  • Pillar Two: Establishes a 15% global minimum corporate tax rate to prevent companies from moving profits to tax havens.

U.S. Involvement and Political Division:

The United States participated in these negotiations across both the Trump and Biden administrations. The Biden administration was a strong proponent of the final deal, seeing it as a way to end the "race to the bottom" on corporate tax rates. However, many Republicans in Congress consistently opposed the deal, arguing it would cede U.S. taxing authority, harm American companies, and put them at a competitive disadvantage. They argued the U.S. already had its own anti-tax-avoidance rules, like the Global Intangible Low-Taxed Income (GILTI) tax.

Why Now? The Political Calculus:

  • Change in Administration: The memorandum was issued on the first day of a new presidential administration, signaling a decisive and immediate break from the policy of the previous one.
  • Asserting Sovereignty: The timing reflects a core political objective of the new administration to prioritize national sovereignty over multilateral agreements.
  • Pre-empting Foreign Action: With many countries beginning to implement the OECD deal in 2024 and 2025, the administration is acting to formally state its position and threaten countermeasures against foreign taxes it deems unfair to U.S. companies.

Your Real-World Impact

The Direct Answer: This memorandum primarily affects large U.S. multinational corporations and has few immediate, direct impacts on the average American.

What Could Change for You:

Potential Benefits:

  • Protection of U.S. Tax Base (Proponents' View): Supporters argue this action protects the U.S. tax base by preventing other countries from taxing the profits of American companies, ensuring that revenue stays in the U.S. Treasury to potentially fund services or reduce other taxes.
  • Economic Competitiveness: The administration's position is that keeping the U.S. corporate tax system independent and competitive will encourage companies to invest and create jobs in the United States.

Possible Disruptions or Costs:

Short-term (1-2 years):

  • Tax Uncertainty for U.S. Companies: U.S. multinationals now face a complex and fragmented global tax landscape. They may be subject to the 15% minimum tax in countries that have adopted the OECD deal, potentially leading to double taxation or higher compliance costs.
  • Trade Disputes: The memorandum's directive to develop "protective measures" against foreign taxes could lead to retaliatory tariffs and trade disputes between the U.S. and key allies, which could disrupt supply chains and increase consumer prices.

Long-term:

  • Erosion of U.S. Tax Revenue: If other countries tax U.S. companies under the OECD rules, those companies might claim foreign tax credits in the U.S., which would reduce the amount of tax they pay to the U.S. Treasury. This could lead to a net loss of revenue for the United States.
  • Global Economic Fragmentation: A U.S. withdrawal could undermine the global consensus on taxing multinational corporations, leading to a patchwork of unilateral taxes (like digital services taxes) and increased economic instability.

Who's Most Affected:

Primary Groups: Large U.S. multinational corporations, especially in the technology, pharmaceutical, and digital service sectors.
Secondary Groups: Investors and employees of these corporations; governments of countries that have implemented the OECD deal.
Regional Impact: There is no specific regional impact within the U.S., but companies headquartered in states with a high concentration of multinational corporations will be most affected.

Bottom Line: This executive action trades global tax cooperation for greater national control, creating significant uncertainty and potential tax conflicts for America's largest global companies.

Where the Parties Stand

Republican Position: "America First, Not Global Tax"

Core Stance: The OECD Global Tax Deal infringes on U.S. sovereignty and unfairly targets American companies, and should be rejected.

Their Arguments:

  • ✓ Sovereignty: Congress, not an international body, should have the sole authority to determine U.S. tax policy.
  • ✓ Competitiveness: The deal would make American companies less competitive by subjecting them to foreign taxes and discouraging pro-growth U.S. tax incentives like R&D credits.
  • ✗ Unfair Targeting: Pillar One, in particular, is viewed as a mechanism designed to transfer tax revenue from the U.S. to other countries, as it disproportionately affects successful American tech companies.
  • ✗ Extraterritorial Taxation: They strongly oppose rules like the Undertaxed Profits Rule (UTPR), which would allow a foreign country to tax a U.S. company's profits if its U.S. tax rate falls below 15%.

Legislative Strategy: Block any legislation to implement the OECD deal, use executive action to withdraw from the agreement, and pursue retaliatory measures against countries that tax U.S. firms under these rules.

Democratic Position: "Fair Share and Global Cooperation"

Core Stance: The OECD Global Tax Deal is a crucial step to stop the corporate "race to the bottom" and ensure profitable multinationals pay their fair share of taxes.

Their Arguments:

  • ✓ Tax Fairness: The deal, especially the 15% global minimum tax, prevents large corporations from shifting profits to tax havens and avoiding their tax obligations.
  • ✓ Global Cooperation: It provides a stable and predictable international tax system, preventing a chaotic mix of unilateral digital services taxes and trade wars.
  • ✓ Protecting U.S. Revenue: By having other countries agree to a minimum tax, it reduces the incentive for U.S. companies to move profits and jobs overseas. The U.S. already has a similar, albeit lower, minimum tax (GILTI).
  • ⚠️ Adequacy of the Deal: Some progressives have argued the 15% rate is too low and that the deal includes too many loopholes, but generally see it as a positive first step.

Legislative Strategy: Align U.S. tax law (like GILTI) with the OECD framework to ensure compliance, protect U.S. revenue, and encourage other nations to adopt the standards.

Constitutional Check

The Verdict: ✓ Constitutional

Basis of Authority:

The President is acting under the authority to conduct foreign policy and direct executive branch agencies. The memorandum itself does not change U.S. law but rather clarifies the administration's stance on an international agreement and directs agencies to act within their existing legal powers. The ultimate authority to tax and enter into treaties rests with Congress and the Senate, respectively.

U.S. Constitution, Article I, Section 8: "The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises..."
U.S. Constitution, Article II, Section 2: "[The President] shall have Power, by and with the Advice and Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur..."

Constitutional Implications:

[Separation of Powers]: The memorandum correctly notes that a commitment by a prior administration does not bind the U.S. without a legislative act by Congress or a ratified treaty by the Senate. It reinforces the constitutional separation of powers where Congress holds the power of the purse and lawmaking.
[Precedent]: The executive branch has broad authority to set foreign policy and interpret the U.S. position on international matters that have not been codified into law by Congress.
[Federalism]: This action has no direct implication for the balance of power between the federal government and state governments.

Potential Legal Challenges:

There are no likely legal challenges to the memorandum itself, as it does not create, repeal, or modify any U.S. law. However, any future "protective measures" (e.g., retaliatory tariffs) proposed by the Treasury and enacted by the President could face legal challenges from affected businesses or foreign governments, likely through international trade bodies like the WTO or in U.S. courts, depending on the specific action taken.

Your Action Options

TO SUPPORT THIS ACTION (WITHDRAWAL FROM THE OECD DEAL)

5-Minute Actions:

  • Call Your Rep/Senators: Capitol Switchboard: (202) 224-3121. "I'm a constituent from [Your City/Town] and I support the President's decision to withdraw from the OECD Global Tax Deal to protect U.S. sovereignty. I urge [Rep./Sen. Name] to oppose any legislation that would implement it."

30-Minute Deep Dive:

  • Write a Detailed Email: Contact members of the House Ways and Means Committee and the Senate Finance Committee to express your support for U.S. tax independence.
  • Join an Organization: Groups that advocate for lower taxes and less regulation, such as the Cato Institute or Tax Foundation, often publish analysis critical of the OECD deal.

TO OPPOSE THIS ACTION (AND SUPPORT THE OECD DEAL)

5-Minute Actions:

  • Call Your Rep/Senators: Capitol Switchboard: (202) 224-3121. "I'm a constituent from [Your City/Town] and I oppose the administration's withdrawal from the OECD Global Tax Deal. I urge [Rep./Sen. Name] to support international cooperation to make sure large corporations pay their fair share of taxes."

30-Minute Deep Dive:

  • Write a Letter to the Editor: Submit a letter to your local newspaper arguing that the OECD deal is necessary to prevent tax avoidance and a "race to the bottom" that harms everyone.
  • Join an Organization: Advocacy groups focused on tax fairness and international cooperation, such as Oxfam, the Institute on Taxation and Economic Policy, or Global Financial Integrity, support the principles of the OECD agreement.