Espen Ommedal
Marianne Brynjulfsen Overaa
Charlotte Heieren
On his first day in office, President Trump issued a memorandum announcing the United States' withdrawal from the Global Tax Deal initiated by OECD, such as the global minimum tax initiative (Pillar II).
The memorandum clarified that the Global Tax Deal rules have no legal force in the United States absent an Act by the Congress adopting the relevant provisions of the Global Tax Deal. The memorandum also directed the Treasury Secretary to review other countries' tax policies to determine if they discriminate against U.S. companies by investigating whether any countries are not in compliance with tax treaties with the US or have implemented rules that are extraterritorial. In addition, the U.S. administration was given the task of providing a list of protective measures or actions the U.S. could adopt in response to such non-compliance or tax rules, and deliver those findings and recommendations to the President within 60 days.
The BEPS (Base Erosion and Profit Shifting) initiative, led by the OECD, aims to address tax avoidance strategies that exploit gaps and mismatches in tax rules to shift profits to low or no-tax locations. Pillar I focuses on nexus and profit allocation, addressing tax challenges from the digitalization of the economy. Many European countries have introduced Digital Services Taxes (DST) and have agreed to withdraw the DST once Pillar I takes effect. Pillar II ensures that the world's largest groups of companies pay tax at a minimum rate of 15 percent, introducing measures like the Income Inclusion Rule (IIR) and the Under-Taxed Payments Rule (UTPR) to prevent profit shifting to low-tax or no-tax jurisdictions. These sets of rules are deemed discriminatory by the U.S. and may trigger response measures as referred to in the memorandum.
The U.S. administration is expected to provide further guidance and reports on its stand on Pillar II and potential counter-measures. On March 21, President Trump was briefed on the Administration's proposed measures in response to the global minimum tax (such as the Under-Taxed Payments Rule) and other discriminating taxes such as the DST. Further reports are expected to be presented to the President on April 1. The timeline for public disclosure remains uncertain.
What protective measures can one expect?
There are several tools that the U.S could use effectively increasing taxes for non-U.S individuals and entities:
- Section 891: subject to certain limitations the section doubles the rates of tax on citizens and corporations of certain foreign countries whenever the President finds that U.S. citizens or corporations are subjected to discriminatory or extraterritorial taxes by the foreign country.
- "Defending American Jobs and Investment Act": a legislative proposal introduced the day after President Trump came into office. The Act introduces a new Section 899 to the Internal Revenue Code, which modernize and operationalize Section 891. The Bill would:
- Require that the Treasury Secretary submits a report to the Congress with a list of countries that impose discriminatory or extraterritorial taxes.
- Impose a 5% addition to the tax rate each year for up to 4 years on the U.S. income of individuals and entities located in a country that imposes discriminatory or extraterritorial taxes (e.g. UTPR or DST).
- Denied benefit of reduced withholding taxes under tax treaties. The additional tax would be imposed on top of the general withholding tax rate.
Norway has implemented the Pillar II IIR rules with effect from 1 January 2024 and the UTPR rules with effect from 2025. Consequently, any protective measures enacted by the U.S. may impact Norwegian individuals and corporations with ties to the U.S., such as those with business operations or permanent establishments in the U.S., shareholdings in U.S. entities, or temporary residence in the U.S.
We will continue to monitor the protective measures proposed by the U.S. administration and potential implementation of such measures.
