tax framework. They also illuminate the distributional tensions and institutional fragility of the 2021 agreement, jeopardising more than a decade of productive international cooperation aimed at addressing corporate tax avoidance and reining in base erosion and profit shifting by the world’s richest multinational corporations. MAINTAINING A COMMITMENT TO GLOBAL TAX JUSTICE To salvage the 2021 agreement and sustain the momentum of global corporate tax reform over the better part of the last decade, G7 members must renew their commitment to global tax justice and fill in the gap left in the wake of the US exit. The G20-OECD’s two-pillar solution, endorsed by 136 jurisdictions in October 2021, was an unprecedented effort to reallocate taxing rights in the digital age under Pillar One, and introduced a 15% global minimum tax under Pillar Two. Some elements of the agreement are now entering into force globally. However, American implementation stalled under President Joe Biden’s administration, and has now been wholly reversed. The Trump administration’s memorandum declares the deal has “no force or effect” in the United States absent Congressional approval and directs the Treasury to investigate retaliatory measures under the rarely invoked section 891 of the Internal Revenue Code. The political fracas is not limited to the White House. Congressional Republicans, who long opposed the Undertaxed Profits Rule under Pillar Two of the 2021 agreement, are now championing legislation that would penalise countries that apply it to American firms. If fully implemented abroad but rejected by Washington, Pillar Two may become a patchwork regime that heightens compliance burdens for multinational corporations, exacerbates disputes and undermines its own legitimacy.
“The evolution of global tax governance is highly contingent on both exogenous shocks and domestic politics. The Trump administration’s policy of aggressive unilateralism and blurred lines between trade and taxation measures challenges the multilateral norms long embedded in the G20-OECD process”
Global reactions have varied. France, Canada and others are proceeding with the digital services taxes that triggered initial US opposition. The United Kingdom may eliminate its DST, which was anticipated to generate £800 million annually in tax revenues, to forestall new US tariffs. Germany and the Netherlands have called for a simplification or suspension of Pillar Two. Simultaneously, developing countries have pivoted to the United Nations as a more representative forum for tax cooperation, launching negotiations for a new global tax convention that excludes the United States entirely, threatening the viability of the 2021 G20-OECD agreement. These momentous shifts show that the evolution of global tax governance is highly contingent on both exogenous shocks and domestic politics. The Trump administration’s policy of aggressive unilateralism and blurred lines between trade and taxation measures challenges the multilateral norms long embedded in the G20-OECD process.
credit rules. The Trump administration’s invocation of national sovereignty risks encouraging further unilateralism elsewhere, with other tax jurisdictions now crafting bespoke rules that deviate from the G20-OECD framework, risking further discord, divergence and fragmentation. Moreover, retaliatory tariffs or double taxation threats are unlikely to deter major economies. Instead, they may catalyse a broader decoupling from US-centric tax norms, processes and rules. The G20-OECD process, while dented, may survive by embracing flexibility, asymmetric timelines or safe harbours for non-compliant jurisdictions. Alternatively, momentum may now shift to the UN, where developing countries – which have claimed marginalisation in the G20-OECD reform processes since the global financial crisis in 2008 – are asserting new leadership. The Trump administration’s withdrawal from the October 2021 global tax agreement shows that international taxation is no longer merely a technical exercise concerned with the prevention of base erosion and corporate tax avoidance. Rather, it is now a battleground for competing visions of the future of economic globalisation, sovereignty and fairness, with implications not only for taxation, but for global trade and investment as well. If the 2021 global tax agreement is to endure, in some form, it must adapt to this new fragmented reality. This will require renewed political will at the G7 and beyond. Otherwise, the promise of tax justice in the digital age risks becoming collateral damage in this new era of economic deglobalisation and fiscal nationalism occasioned by the Trump administration’s recent policies.
ADAPTIVE RESPONSES TO FRAGMENTATION
Yet the US withdrawal also exposes structural contradictions. While rejecting Pillar Two, the United States has already implemented a quasi-minimum tax – the Global Intangible Low-Taxed Income rule – and complex foreign tax
// MICHAEL F. MOTALA Michael F. Motala is a fellow with the G7 Research Group, a scholar of global corporate taxation, an instructor in taxation at Osgoode Hall Law School, an incoming assistant professor of law at the University of Tulsa College of Law, teaching in tax, corporations, securities and advanced contracts, and a trial and corporate lawyer who founded and leads EVERLEX Legal Professional Corporation.
41 globalgovernanceproject.org
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