Donald Trump is back in the White House, and he’s wasted no time shaking things up. One of his first big moves? Pulling the U.S. out of the OECD global tax deal.
On 4 February, the U.S pulled out of the process to deliver new UN Framework Convention on International Tax. His actions have sent shockwaves through the international tax landscape, raising major questions about the future of global tax policies. This has big implications for multinational businesses trying to navigate the OECD’s rules. More recently, Trump has raised concerns over a ‘deficit’ that exists between the United States and the Republic of Ireland, stating that the Irish government have been taking a share of US Pharmaceutical business via low taxation incentives. A shake up of the global tax landscape is imminent, via Pillar 2 or any alternative measures taken by the Trump administration.
WHAT IS THE OECD?
The Organisation for Economic Co-operation and Development (OECD) is an international organisation that works with governments to develop policies that promote economic growth, trade, and financial stability. One of its key initiatives is tax reform, including measures like the global minimum tax rates. All aimed at preventing profit shifting and tax avoidance by multinational corporations.
These recommendations are not required to be implemented by any jurisdiction, but as the OECD are highly respected on the global stage, many countries enact legislation designed to achieve a fair outcome and prevent a race to the bottom.
WHY IS TRUMP PLANNING TO WITHDRAW?
The OECD aims to establish a minimum global corporation tax rate of 15%, ensuring that multinational companies pay a fair share of tax wherever they operate. The initiative has been widely adopted, with around sixty countries, including the UK, implementing the rules.
Trump’s opposition is largely ideological. He has long been critical of international agreements that he perceives as limiting U.S. sovereignty. His argument? The OECD tax deal puts American businesses at a disadvantage and allows foreign governments to claim tax revenue that, in his view, should belong to the U.S.
WHAT’S THE TIMELINE & GLOBAL IMPACT?
With Trump now in office, his administration is expected to begin the process of withdrawing from the OECD tax deal soon. The timeline for this remains uncertain, but businesses are already preparing for the potential fallout. The U.S. pulling out could create uncertainty, especially for companies with a U.S. parent entity. Other major economies, such as India and China, have also been slow to fully implement the OECD rules, adding to the complexity.
For now, the OECD rules remain in place, with the UK and other countries moving ahead. But the U.S pulling out will trigger further discussions about the framework’s long-term viability.
HOW DOES THIS AFFECT YOUR BUSINESS?
UK Implementation: Where We Stand Now
In the UK the OECD rules are known as ‘Pillar 2 rules’. They apply to companies with global consolidated revenues exceeding EUR 750m. These rules affect accounting periods beginning on or after 31 December 2023, meaning businesses with a 31 December 2024 year-end must register with HMRC and provide key information before 30 June 2025.
If your business is a UK-based subsidiary of a multinational company exceeding the EUR 750m threshold, here’s what you need to consider:
- Parent Company Location This matters If your parent company is in a country implementing the OECD rules, compliance may be handled at a group level. We recommend checking in with your global tax team to ensure everything is being managed correctly.
- U.S. Headquartered Groups Given Trump’s recent announcement, Cooper Parry will be supporting clients that’re UK subsidiaries of U.S. headquartered groups that are affected.
- Other Non-Compliant Countries Some other jurisdictions, including India and China, have yet to fully implement the rules. If your parent company is based in one of these countries, we’ll guide you through the process.
- UK-Only Groups If your UK-based company breaches the turnover threshold, compliance obligations still apply. Get in touch with us to ensure you’re meeting all the necessary requirements.
Audit Implications
For clients undergoing audits, our team will factor in Pillar 2 disclosures in financial statements. Any tax arising under Pillar 2 must be quantified in the tax provision. As part of our audit process, we will assess both the data sources used and the accuracy of estimates, along with any carve out provisions.
HOW WE’RE HELPING CLIENTS
Whilst many global groups are choosing to manage their Pillar 2 compliance in-house, we understand that this approach does not necessarily work for everyone. We have a specialist team available who can discuss your UK Pillar 2 compliance requirements and assist you with registering for Top-up taxes with HMRC and providing support on the inherent complexities of the calculations specific to your circumstances.
At this stage, Cooper Parry is supporting clients on a case-by-case basis rather than offering a fixed service package for Pillar 2 compliance. However, as the regulatory landscape evolves, we may reassess our approach.
NEED SUPPORT? WE’RE HERE TO HELP
If you have concerns about Pillar 2 compliance, audit implications, or what Trump’s potential withdrawal means for your business, reach out to our Big Business Tax team. We’ll help you navigate the complexities and stay ahead of any changes.
